Diversified ESG Evaluation by Rating Agencies and Net Carbon Tax to Regain Optimal Portfolio Allocation

Naoyuki Yoshino (), Tomonori Yuyama and Farhad Taghizadeh-Hesary
Additional contact information
Tomonori Yuyama: Japan Financial Services Agency
Farhad Taghizadeh-Hesary: Tokai University

Asian Economic Papers, 2023, vol. 22, issue 3, 81-96

Abstract: Environmental, Society, and Governance (ESG) investments have become increasingly popular in recent years, and, at the same time, many rating agencies provide ESG scores for each company. This means that the ESG investment model may have moved from the traditional two-factor model of risk-return to a three-factor model adding an ESG component to it. This paper highlights the potential for distortion of asset allocation through the shift from traditional risk-return considerations to ESG score considerations. This is equally true for green bonds, resulting in the potential for asset allocation to be distorted by green bond criteria. Furthermore, we show that imposing a net carbon tax on greenhouse gas (GHG) emissions is a measure to correct this distortion in asset allocation and make asset allocation more risk-return based, in addressing global environmental issues.

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1162/asep_a_00871
Access to PDF is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:asiaec:v:22:y:2023:i:3:p:81-96

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=1535-3516

Access Statistics for this article

Asian Economic Papers is currently edited by Wing Thye Woo, Sungbae An, Fukunari Kimura and Ming Lu

More articles in Asian Economic Papers from MIT Press
Bibliographic data for series maintained by The MIT Press ().