When Green Mission Meets ESG Ratings: An Event Study of Tesla’s Market Reaction

Abstract

As global inves tment preferences shi f t toward environmental and sustainability factors, ESG ratings are becoming an increasingly important factor in investment decisions. Many existing studies have confirmed the correlation between ESG ratings and corporate financial performance, but in-depth discussion on the “paradox” of companies such as Tesla, which make outstanding contributions in core environmental protection areas but perform poorly in overall ESG ratings, is limited. This paper takes the event of Tesla being removed from the S&P 500 ESG Index on May 18, 2022, as the research object, and adopts the event study method to analyze the stock price changes in the event window period ([-5, +5] trading days) and the later period (30 trading days after the event). Results indicate that there is no significant abnormal return before the event date, suggesting that the information was not leaked in advance, while after the event, the largest negative abnormal return occurs on the second trading day after the event, reflecting the rapid market reaction to ESG information and the negative impact of the event on firm valuation. This study supports the view that ESG information is value-relevant and provides an empirical basis for incorporating ESG factors into investment decisions.