ESG as Protection Against Downside Risk

Kräussl, Roman, Tobi Oladiran and Denitsa Stefanova
Authors registered in the RePEc Author Service: Roman Kräussl

No 19292, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 the ESG score level itself. Aggregate downside risk bears a negative price for firms with low ESG disparity.

JEL-codes: G12 G18 G32 (search for similar items in EconPapers)
Date: 2024-07
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Working Paper: ESG as protection against downside risk (2023)
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