Relationship Between Systematic Risk and ESG in Brazil

Pedro Henrique de Oliveira Santos; Marcio Marcelo Belli; Luiz Eduardo Gaio

doi:10.16930/2237-766220263556

Authors

Pedro Henrique de Oliveira Santos Universidade Estadual de Campinas (UNICAMP) https://orcid.org/0000-0002-0824-9113
Marcio Marcelo Belli Universidade Estadual de Campinas (UNICAMP) https://orcid.org/0000-0001-7882-5051
Luiz Eduardo Gaio Universidade Estadual de Campinas (UNICAMP) https://orcid.org/0000-0003-3106-7649

DOI:

https://doi.org/10.16930/2237-766220263556

Keywords:

ESG, CSR, Risk, Brazil, Emerging Markets

Abstract

Sustainability has become a central concern for both academia and financial markets, particularly regarding the potential of Environmental, Social, and Governance (ESG) practices to mitigate corporate risk. This study addresses the limited empirical evidence from developing economies by examining whether ESG performance influences systematic risk among publicly traded firms in Brazil, an emerging market characterized by volatility and evolving sustainability practices. Using a quantitative approach, this research employs panel data regression models with fixed effects, based on 456 firm-year observations from 108 companies listed on B3 between 2015 and 2023. ESG indicators were obtained from Refinitiv Eikon™ (LSEG), one of the most widely used databases in the literature. Four regression models were constructed: one for the composite ESG score and three for the individual environmental, social, and governance pillars. The robustness of the analysis was verified through winsorization, variance inflation factor (VIF) tests, heteroskedasticity checks, and the Hausman specification test to ensure estimator reliability. The results indicate that only the environmental pillar exhibits a statistically significant negative relationship with systematic risk (β = –0.00032; p = 0.058), suggesting that better environmental performance is associated with lower exposure to market volatility. The composite ESG score and the social and governance dimensions did not show significant effects. These findings diverge from those in developed economies, where ESG performance is often linked to risk reduction.The study provides novel empirical evidence on the partial risk-mitigating role of ESG in emerging markets, highlighting the relevance of environmental practices as the only dimension currently priced by investors in Brazil. It advances the understanding of how institutional maturity and market structure influence the financial materiality of ESG factors, offering implications for policymakers, investors, and researchers interested in sustainable finance in developing contexts.

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