ESG risk, economic policy uncertainty, and the downside risk: Evidence from US firms

Chia-Hsien Tang, Hung-Chun Liu, Yen-Hsien Lee and Yuan-Teng Hsu

The North American Journal of Economics and Finance, 2025, vol. 75, issue PA

Abstract: This study investigates the relationship between risk factors of Environmental, Social, and Governance (ESG) and the downside risk of U.S. firms and tackles the role of economic policy uncertainty (EPU) in this relationship. Our results show that the downside risk of firms, as measured by value-at-risk and lower partial moment, is positively affected by ESG risk scores, and that this effect becomes more pronounced as EPU rises. These results are robust to two other alternative measures of ESG risk. We argue that enhancing ESG management and adaptability to economic uncertainty is crucial for aligning with sustainable development goals. Our findings provide valuable insights for U.S. firms, investors, and policymakers looking to navigate the evolving risk landscape.

Keywords: Downside risk; Value-at-risk; Lower partial moment; ESG risk; Economic policy uncertainty (search for similar items in EconPapers)
JEL-codes: G1 G18 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:75:y:2025:i:pa:s1062940824002183

DOI: 10.1016/j.najef.2024.102293

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