ESG materiality issues on stock returns: Stock Exchange of Thailand

This study investigates the impact of Environmental, Social, and Governance (ESG) materiality issues on stock returns in the Stock Exchange of Thailand (SET). Leveraging data from 90 listed companies between 2018 and 2021, the research examines whether firms focusing on material ESG issues demonstrate superior performance. Using an innovative SASB, MSCI, and MSCI-SASB ESG materiality framework, the study differentiates between material and immaterial ESG issues. By constructing portfolios based on ESG materiality scores and evaluating their performance through a comprehensive five-factor model, the research provides nuanced insights into ESG investing in an emerging market context. The study addresses a critical gap in the existing literature by exploring ESG materiality's impact in the Thai market, where unique market characteristics may influence the relationship between sustainability factors and financial performance. Additionally, the research analyses potential differences in stock returns between firms listed on the Refinitiv ESG rating and those not included in the rating. The findings of this study exhibit that different ESG materiality frameworks as well as portfolio weighting methodologies provide different results on the relationship between ESG materiality and stock returns in Thailand. As the equal-weighted portfolio exhibits consistently higher volatility than the value-weighted portfolio. This research contributes to the understanding of ESG materiality in emerging markets and offers valuable implications for investors seeking to integrate ESG considerations into their investment strategies.