ESG rating changes and portfolio returns: A wavelet analysis across market caps

•Connectivity between changes in E, S, G pillar ratings and stock returns is studied.•Advanced wavelet analysis reveals positive connectedness mostly in the long run.•Conversely, in 2019–2020 elevated E-ratings coincide with reduced stock performance.•Inter-pillar E and S dynamics, especially post-2015, unveil evolving complexities.•Hierarchical connectedness among portfolios underscores unique patterns. This study implements advanced wavelet analysis to affirm a strong positive connectedness between E, S, and G pillar ratings and equity portfolio returns, particularly at low frequencies or long-term investment horizons. However, for E-pillar strategies, a transient negative "equity greenium" phase in 2019–2020 indicates that elevated E-ratings coincide with reduced financial performance. Bidirectional relationships challenge conventional ESG score notions, with weaker global ESG return connections, mid-cap portfolio exceptions (2015–2017), and short-term impacts on large caps (2019–2021). Inter-pillar connections, especially post-2015 E and S dynamics, unveil evolving complexities. Hierarchical connectedness patterns among portfolios underscore unique dynamics, emphasizing the multifaceted ESG landscape.