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2022 | Buch

Risks Related to Environmental, Social and Governmental Issues (ESG)


Über dieses Buch

The transformation of the investment industry towards one that finances a sustainable economy seems underway. The question is what will go faster: global warming or the corrective action driven, in large part, by the capital markets. Crucial in this race is that investors gain experience in what-is-called sustainable investing. It is work in progress. This book showcases the serious efforts that are going into ESG investment research, covering corporate social responsibility, climate-focused investing, the green bond market, investor sentiment, sustainability efforts, and the impact of ESG scores on stock prices.


Introductory Editorial
As soon as he took office, on the 20th of January 2021, Joseph Robinette Biden made the choice to re-join the Paris Climate Agreement. This choice sent the issue of climate change straight back up onto the top of the world agenda. Initiated in 2016 at the COP 21 summit in Paris and since ratified by more than 190 countries, the commitment was made to curb the rise in temperature between 1.5 and 2 degrees Celsius. Or else, survival may be at stake. The commitment calls, as challenging as indeed it sounds, for the building of an economy that the planet can sustain.
Marielle De Jong, Cécile Diana, Julie Malbois
The Impact of Corporate Social Responsibility on Corporate Financial Performance and Credit Ratings in Japan
We investigate the impact of companies’ sustainability eff orts on their corporate financial performance (CFP) and credit ratings in Japan, based on a new proxy for corporate social responsibility (CSR)—Sustainalytics’ quantitative Environment, Social and Governance (ESG) ratings. We find weak evidence of a negative impact of ESG scores (on an aggregated basis and disaggregated basis) on several accounting measures of CFP. Our quantile regression results reveal a nonlinear pattern across the quantiles, with CSR effects intensifying at the extremal quantiles. However, we find a weak positive relationship between ESG and stock market-based measures, as well as between ESG and credit ratings. Our findings suggest that investors, credit rating agencies (CRAs) and regulators should differentiate between the three types of ESG screening as they interact and contribute in their specific way to the aggregate ESG effect.
Frank J. Fabozzi, Peck Wah Ng, Diana E. Tunaru
Green Bonds: Shades of Green and Brown
We analyse the existence of a green bond premium and find a negative premium of 8 to 14 basis points. We are further interested in the influence of ESG ratings on green bonds to determine if investors differentiate between the shade of green. Examining a unique dataset of green bonds, we find a statistically significant influence of ESG ratings on bond spreads. A one-point increase in the weighted average ESG score leads to a decrease in the spread of 6 to 13 basis points. Interestingly, the results are not driven by the environmental friendliness of the green bond issuer, but through the company’s governance.
Moritz Immel, Britta Hachenberg, Florian Kiesel, Dirk Schiereck
Air Pollution, Investor Sentiment and Excessive Returns
This paper extends the asset pricing literature by offering a proprietary index of negative investor sentiment linked to carbon monoxide (CO), nitrogen dioxide (NO2), ozone particle (O3), 2.5 mm particulate matter (PM2.5), and sulfur dioxide (SO2) levels; determining the link between New York City air pollution and stock market returns. Kindly note that Food products and wholesale portfolio returns on average increase with enhanced negative investor sentiment. This is consistent with behaviors associated with psychological stress, like binge eating and shopping sprees. Personal services portfolio returns decrease on average with increased negative investor sentiment, consistent with behavioral isolationism.
Matthew Muntifering
Sustainability Efforts, Index Recognition, and Stock Performance
We examine the long-term performance of stocks appearing in the Dow Jones Sustainability Index North America. We find that sustainability stocks exhibit abnormal returns for 12–30 months after the index listing, while those stocks generate no excess returns before the index listing. Moreover, sustainability stocks experience an increase in institutional ownership after the index listing. However, we find no evidence that short sellers increase their position to exploit a possible overpricing for sustainability stocks. Overall, our analysis suggests that sustainability efforts translate into a permanent increase in demand for stocks, leading to the superior performance.
Moonsoo Kang, K. G. Viswanathan, Nancy A. White, Edward J. Zychowicz
Expected and Realized Returns on Stocks with High- and Low-ESG Exposure

Empirically, stocks with a good environmental, social, or governance (ESG) rating tend to earn higher returns than stocks with a low rating. In contrast, the expected returns of high-ESG stocks are primarily lower than those of low-ESG stocks. The difference between realized and expected returns in the ESG domain constitutes a puzzle which we will address in this paper. Applying a return decomposition, we find that the puzzle can be explained by discount rate news. We find that discount rates of high-ESG stocks have fallen relative to low-ESG stocks. However, discount rate news does not reflect changes in risk; rather, discount rate news is systematically related to the demand of investors who have ESG preferences.

Olaf Stotz
Risks Related to Environmental, Social and Governmental Issues (ESG)
herausgegeben von
Marielle de Jong
Dan diBartolomeo
Electronic ISBN
Print ISBN