THE IMPACT OF MSCI ESG RATINGS ON STOCK MARKET BETA: CASE STUDY IN INDONESIA AND AUSTRALIA

• Main Author: Vichsanzy, Falahariq
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/87229
• Institution: Institut Teknologi Bandung

Environmental, Social, and Governance (ESG) factors have increasingly become integral to investment decision-making, with the potential to influence corporate performance and market dynamics. This study examines the relationship between ESG ratings and stock market volatility, as measured by stock beta, among publicly listed companies in developed (Australia) and emerging (Indonesia) markets. Utilizing ESG ratings from multiple providers—including MSCI (Morgan Stanley Capital International), Sustainalytics, LSEG, S&P ESG, and ISS ESG—this research aims to determine whether higher ESG performance correlates with reduced market risk and to compare the efficacy of different ESG rating frameworks in predicting stock beta. Employing regression analyses and correlation studies on data collected from 48 companies over five MSCI rating periods, the findings reveal that ESG ratings do not have a statistically significant impact on stock beta in either market context. Additionally, traditional financial indicators such as Price-toEarnings Ratio (P/E), Return on Equity (ROE), and Debt-to-Equity Ratio (DER) also fail to demonstrate significant relationships with stock volatility. These results suggest that ESG factors may be more closely related to non-market risks, such as operational efficiency and reputational management, rather than systematic market risk captured by beta. The study highlights the complexity of integrating ESG considerations into financial models and underscores the need for future research to explore alternative risk metrics that encompass both systematic and idiosyncratic risks. Recommendations for investors, companies, and policymakers are provided to enhance the strategic integration of ESG factors, emphasizing a long-term perspective and the importance of standardized ESG reporting. This research contributes to the ongoing discourse on sustainable finance by providing empirical evidence on the limited short-term impact of ESG ratings on market volatility, particularly within the distinct contexts of developed and emerging economies.