Banor-ESG ratings and market performance of European Securities: recent changes

The aim of the study is to update the analysis previously conducted by the research teams of Banor SIM and Politecnico di Milano on the correlation between ESG scoring—a synthetic indicator of the sustainability level of listed companies—and the market performance of equity and bond securities.

The studies referring to the period 2012–2017 had shown that a more pronounced sustainability profile is associated with better stock market returns and a slight advantage in bond spreads, with lower market-perceived risk, particularly for high-yield securities.

The new empirical evidence collected for the European market highlights a different picture.

The years from 2018 to 2024 have been marked by unprecedented events, such as the pandemic and the war in Ukraine, which caused energy crises and new geopolitical tensions, leading to a rapid rise in inflation and interest rates. At the same time, interest in ESG topics has grown significantly, reflected in the increase in the average ESG score assigned to listed companies.

Across all analyzed years, securities with lower ESG scores outperformed those with medium and high scores. Only 2022 stands out as an exception: during that period, securities with high ESG ratings showed greater resilience compared to those with lower scores. Over the five-year span, the portfolio composed of low-ESG-score securities generated a simple return of +170.1%, compared to +67.2% for the medium-score portfolio and +49.3% for the top ESG performers, which essentially mirrored the Bloomberg Europe 500 Total Return index.

However, very specific dynamics are observed for each year and for each of the three ESG pillars. For example, between 2018 and 2021, the equities most rewarded by the market were those that showed the greatest increase in their sustainability scores. In contrast, in 2022 and 2023, there were no significant differences between companies that maintained their scores and others.

As for the bond market, between 2020 and 2024, it did not reverse the trend observed in the previous period, although the advantage of issuers with higher sustainability ratings in terms of better returns and lower risk spreads appears to have diminished and is confined to specific time frames. The correlation is clearly weak for investment-grade bonds, whereas in the case of high-yield bonds, a negative correlation is visible between risk and environmental performance. This relationship is reversed in the case of social performance. This result suggests that the additional spread per unit of risk is lower for bonds issued by companies more attentive to environmental aspects.

The key takeaway from the study is that there is no “absolute truth” in the market when it comes to sustainability: ESG scoring is one of the analytical lenses for assessing issuing companies and helps to understand future opportunities, but it must be interpreted considering prevailing market conditions. The integration of ESG criteria into investment decisions must now be done through various and diverse approaches.

However, despite some underwhelming years, investment strategies focused on ESG factors have demonstrated their ability to generate positive market results over the long term. The adoption of sustainable practices remains a tangible driver of earnings growth and risk reduction, but considering ESG ratings alone is no longer sufficient: a deeper analysis is required—one that can grasp the complexity and evolution of the market context.