An Event Study on the Impact of Sustainability Announcements : Evidence from Green and Brown Equity Portfolios

This thesis investigates how environmental sustainability announcements impact the stock performance of “green” vs “brown” companies. Focusing on Bank of America’s unexpected exit from the Net-Zero Banking Alliance (NZBA) on December 31, 2024. This study uses an event study methodology to assess abnormal and cumulative abnormal returns (AR and CAR) across four event windows. The analysis compares two portfolios, each containing the 100 largest green and brown companies by market capitalisation. Results show clear asymmetry, brown firms exhibit statistically significant positive returns over short-term windows (5-day and 10-day), suggesting investors perceived BoA’s exit as easing ESG-related pressure. On the other hand, the green portfolio shows no significant reaction, consistent with the idea that ESG-focused investors are less responsive to isolated events and more driven by long-term values. These findings align with the efficient market hypothesis and signalling theory and highlight how sustainability signals are interpreted differently across sectors, dependent on investor expectations. While limited by its focus on a single event and a 192-day estimation window, the study adds to the ESG finance literature by showing how sustainability announcements can differentially influence market outcomes.