This research explores the impact of ESG risk on stock returns and risks including time-varying systematic (beta) and idiosyncratic risk components. The analysis reveals that, while beta exhibits a negative relationship with energy stock returns, ESG risk and idiosyncratic risk do not show a statistically significant relationship with returns in the energy sector. Moreover, energy stock returns tend to move the same direction with market index returns.
This research could not find evidence for a relationship between ESG risk and systematic and idiosyncratic risks.

The findings contribute to the ongoing debate regarding the financial implications of ESG risk, highlighting that, at least in the short term, ESG risk may not be a primary driver of stock returns in the energy market. These results have important implications for investors and policymakers, particularly in the context of integrating ESG factors into investment strategies and corporate governance practices within the energy industry.