ESG risk exposure: a tale of two tails

Runfeng Yang, Massimiliano Caporin and Juan Jimenez-Martin

Quantitative Finance, 2024, vol. 24, issue 6, 827-849

Abstract: This paper studies the ESG impact to the downside risk of companies in the US market by introducing a novel measure, the ESG risk contribution (ΔCoESGRisk). ΔCoESGRisk is a measurement based on the co-movement between the ESG risk factor and the downside risk. When there is a sudden increase in the ESG risk factor, the downside risk of high-ESG companies is reduced. However, under extreme conditions, the downside risk of high-ESG companies could also be increased, due to the increased company volatility. The ESG impact is positively correlated with the ESG performance and size, and it varies among sectors.

Date: 2024
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DOI: 10.1080/14697688.2024.2349016

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