Politics, Pollution and Profits

Abstract

This research investigates how stock markets react to far-right electoral victories in Europe. It focuses on firms with weak environmental performance, often referred to as ‘brown’ or low ESG firms. The main question is whether these firms experience positive abnormal stock returns in the days surrounding such elections. To answer this, an event study and cross sectional regression analysis were conducted on a sample of listed firms in six European countries. ESG performance was measured using Truvalue’s ESG Insight Score and tested against cumulative abnormal returns (CARs) following far-right election outcomes. The results show that low-ESG firms experienced significantly positive abnormal returns. This effect was especially visible in short event windows. Regression results suggest a negative relationship between higher ESG score and CARs, although the estimates lack statistical significance and robustness across model specifications. The results suggest that markets may temporarily price in a reduced transition risk for low-ESG firms when climate-skeptical parties gain power. This has implications for both investors and policymakers in a time of political volatility and climate urgency.