Evaluating the performance of ESG investments in the Brazilian equity market during periods of market turmoil

This study examines whether ESG-oriented investments are more resilient during periods of market stress in an emerging economy. Using daily data from the Brazilian Corporate Sustainability Index (ISE) and the IBOVESPA from 2006 to 2024, the analysis combines the Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model with a stress definition based on the lower 5% of market returns, consistent with the tail-risk literature. Differences in performance are evaluated using parametric and non-parametric statistical tests. The results show that ESG outperformance in Brazil is state-dependent. The ISE does not significantly outperform the broader market during normal market conditions. However, during extreme market-wide downturns, defined as the lowest 5% of IBOVESPA returns, the ESG index performs relatively better. This effect is not observed under alternative stress definitions based on volatility spikes or ESG-specific downturns. Overall, the findings suggest that ESG investments, in this study represented by the ISE index, may offer relative protection during systemic market crises, rather than delivering persistent outperformance across all market conditions.