ESG as Protection Against Downside Risk

Reference : ESG as Protection Against Downside Risk


	Document type :	E-prints/Working papers : Already available on another site
	Discipline(s) :	Business & economic sciences : Finance
	To cite this reference:	http://hdl.handle.net/10993/56037

Title :	ESG as Protection Against Downside Risk
Language :	English
Author, co-author :	Kräussl, Roman [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF) >]
	Oladiran Tobi Ezekiel, Tobi [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF) >]
	Stefanova, Denitsa [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF) >]
Publication date :	2023
Peer reviewed :	No
Keywords :	[en] ESG ; downside risk ; options ; regulation ; risk premium
Abstract :	[en] 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 ESG score level itself. Aggregate downside risk bears a negative price for firms with low ESG disparity.
Permalink :	http://hdl.handle.net/10993/56037
source URL :	http://dx.doi.org/10.2139/ssrn.4335850

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