The Integration of Conventional Equity Indices with Environmental, Social, and Governance Indices: Evidence from Emerging Economies

Ramiz ur Rehman, Muhammad Zain ul Abidin, Rizwan Ali, Safwan Mohd Nor, Muhammad Akram Naseem, Mudassar Hasan and Muhammad Ishfaq Ahmad
Additional contact information
Ramiz ur Rehman: School of Management, Xi’an Polytechnic University, Xi’an 710048, China
Muhammad Zain ul Abidin: Lahore Business School, The University of Lahore, Lahore 54100, Pakistan
Rizwan Ali: Lahore Business School, The University of Lahore, Lahore 54100, Pakistan
Safwan Mohd Nor: Faculty of Business, Economics and Social Development, University of Malaysia Terengganu, Kuala Nerus 21030, Terengganu, Malaysia
Muhammad Akram Naseem: Lahore Business School, The University of Lahore, Lahore 54100, Pakistan
Mudassar Hasan: Lahore Business School, The University of Lahore, Lahore 54100, Pakistan
Muhammad Ishfaq Ahmad: Lahore Business School, The University of Lahore, Lahore 54100, Pakistan

Sustainability, 2021, vol. 13, issue 2, 1-27

Abstract: This study investigates the integration of environmental, social, and governance (ESG) equity indices with conventional indices in Brazil, Russia, India, China, and South Africa (BRICS) individually and across all BRICS countries to better understand regional economic cooperation. Accordingly, we look at daily returns from 13 July 2013 to 28 February 2018 for the Morgan Stanley Capital International (MSCI) ESG indices and MSCI composite indices of the respective countries. To analyze the integration between the ESG equity indices of the sampled countries with their regional and across regional conventional counterparts, the Johansen Co-integration test is employed in this study. Further, the vector error correction model (VECM) is applied to test the causality between the sampled time-series. The impulse response function analysis further explains the impulse responses of each country’s MSCI ESG returns to one standard deviation of innovations to MSCI composite returns of the same country and across countries. Finally, the extent of the MSCI composite returns’ impact on the MSCI ESG returns in the same country indices, and cross-regional indices is examined with variance decomposition analysis. The results suggest that all ESG equity indices are integrated with conventional indices in all BRICS countries. Furthermore, there is a short-or long-run causality between MSCI ESG and MSCI composite equity indices of China and South Africa. Moreover, the study finds only short-run causality between conventional and non-conventional equity indices of Brazil and Russia, whereas we find only long-run causality between India’s non-conventional and conventional equity indices. Finally, the study finds that the all-individual country MSCI ESG equity indices shows a long-run causality with MSCI composite equity indices of all other BRICS countries. The findings also confirm the economic and financial cooperation between the BRICS countries.

Keywords: MSCI; environmental; social; governance; ESG; equity indices; Brazil; Russia; India; China; South Africa; BRICS; cointegration analysis; VECM; impulse response function; variance decomposition (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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