ASSESSING THE STABILITY OF ESG INVESTMENTS USING A GARCH (1,1) MODEL

Abstract

This study investigates the volatility, stability, and resilience of Environmental, Social, and Governance (ESG) securities compared to non-ESG securities under varying market conditions. Using the GARCH (1,1) model, we analyze daily financial data from 2020 to 2024 to evaluate how ESG securities respond to market shocks and volatility dynamics. Our analysis focuses on three key dimensions: whether ESG securities exhibit lower volatility, maintain stability over extended periods, and recover more effectively from external disruptions such as the COVID-19 pandemic. The research results show that ESG securities demonstrate significantly lower conditional volatility, with faster reversion to stable states than non-ESG counterparts. During market turbulence, ESG securities experience smaller price declines and quicker recovery, highlighting their resilience. Sector-specific analysis reveals that renewable energy and technology sectors benefit most from ESG integration, while traditional industries show limited improvements. These findings suggest that ESG investments mitigate financial risk and enhance long-term securities sustainability. This research contributes to the sustainable finance literature by empirically validating the risk-management advantages of ESG strategies. It provides practical insights for investors and policymakers seeking to align financial goals with sustainability objectives. While the study relies on historical data and aggregated ESG metrics, future work could explore dynamic ESG scoring and cross-regional comparisons to refine the understanding of ESG financial impact further.