Risk mitigation effects of ESG scores on Chinese A-shares and Sustainability Kuznets Curves around COVID-19 periods

This study investigates whether Environmental, Social, and Governance (ESG) performance mitigates stock-price risk in China’s A-share market over 2018—2022, spanning the pre-COVID-19 period, the COVID-19 shock, and the post-COVID-19 recovery. Using the Sino-Securities Index (SNSI) ESG dataset, results show that ESG reduces volatility across periods, with strong risk reduction effects for medium- and large-cap firms, while the benefits for small firms are not observed. Compared to the tail-risk of Conditional Value at Risk (CVaR) and crash risks of negative coefficient of skewness (NCSKEW) and down-to-up volatility (DUVOL), and the other ESG dataset of China Research Data Services (CNRDS), SNSI and CNRDS provide strong evidence of stock-price risk and tail-risk reductions, whereas the effect of SNSI is stronger than that of CNRDS. However, CNRDS enables the capture of crash risk during a crisis. Difference-in-differences results for the triple treatment of the launch of the national carbon emissions trading system (ETS) in 2021, ETS-regulated firms, and high-ESG firms suggest that high-ESG firms in regulated sectors experience short-term increases in volatility following the ETS, reflecting compliance and adjustment costs. Further, industry and ownership heterogeneity analyses reveal that ESG benefits are concentrated in manufacturing and resource-intensive sectors, with private firms gaining more in tranquil periods and state-owned enterprises in crisis and recovery periods. By proposing a novel Sustainability Kuznets Curve (SKC) as an inverted Environmental Kuznets Curve, the SKC analysis confirms a U-shape relation between stock-price risk and firm size, consistent with an inverted U-shape relationship between ESG scores nd firm size.