ESG Investing: A Chance To Reduce Systemic Risk

Roy Cerqueti, Rocco Ciciretti, Ambrogio Dalò () and Marco Nicolosi
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Ambrogio Dalò: University of Groningen

No 498, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: We consider a network of equity mutual funds characterized by different levels of compliance with Environmental, Social, and Governance (ESG) aspects. We measure the impact of portfolio liquidation in a stress scenario on funds with different ESG rates. Fire sales spillover from portfolio liquidation propagates from one fund to another because of indirect contagion mediated by common asset holdings. We find that the vulnerability of funds to contagion decreases with the level of ESG compliance. Contagion is less effective for higher ranked funds than for lower ranked ones. In particular, for different levels of portfolio liquidation, the relative market value loss of the highest ESG ranked funds is lower than the loss experienced by the lowest ESG ranked counterpart.

Keywords: ESG Investing; Systemic Risk; Market Impact; Network; Indirect Contagion (search for similar items in EconPapers)
JEL-codes: C02 G32 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2020-06-19, Revised 2020-08-04
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: ESG investing: A chance to reduce systemic risk (2021)
Working Paper: ESG Investing: A Chance To Reduce Systemic Risk (2021)
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