ESG as protection against downside risk

Roman Kräussl, Tobi Oladiran and Denitsa Stefanova

No 708, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: We examine whether the uncertainty related to environmental, social, and governance (ESG) regulation developments is reflected in asset prices. We proxy the sensitivity of firms to ESG regulation uncertainty by the disparity across the components of their ESG ratings. Firms with high ESG disparity have a higher option-implied cost of protection against downside tail risk. The impact of the misalignment across the different dimensions of the ESG score is distinct from that of ESG score level itself. Aggregate downside risk bears a negative price for firms with low ESG disparity.

Keywords: ESG; rating; downside risk; options; regulation; risk premium (search for similar items in EconPapers)
JEL-codes: G12 G18 G32 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cfn, nep-env and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: ESG as Protection Against Downside Risk (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:285370

DOI: 10.2139/ssrn.4335850

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