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A Pitfall in Ethical Investing: ESG Disclosures Reveal Vulnerabilities, Not Virtues

20 Pages Posted: 20 Sep 2016  

Gerald T. Garvey

Blackrock

Joshua Kazdin

Blackrock

Joanna Nash

Blackrock

Ryan LaFond

Algert Global, LLC

Hussein Safa

Blackrock

Date Written: September 19, 2016

Abstract

It is widely believed that ESG (Environmental, Social, Governance) investing helps reduce regulatory and reputational risks. In a large global panel, we find that ethics controversies are more likely for firms that adopt popular ESG policies. The effect is attenuated by controlling for size, industry, and country but remains economically and statistically significant. We also show that some prominent ESG indexes favor companies that disclose more ESG policies and as a consequence generally have greater controversy exposure than an ESG-unaware benchmark.

Keywords: Social Responsibility; Controversies

JEL Classification: G30, G38

Suggested Citation

Garvey, Gerald T. and Kazdin, Joshua and Nash, Joanna and LaFond, Ryan and Safa, Hussein, A Pitfall in Ethical Investing: ESG Disclosures Reveal Vulnerabilities, Not Virtues (September 19, 2016). Available at SSRN: https://ssrn.com/abstract=2840629

Gerald T. Garvey (Contact Author)

Blackrock ( email )

Level 37, Chifley Tower
2 Chfiley Square
Sydney, NSW 2000
Australia
+61 2 9272 2388 (Phone)

Joshua Kazdin

Blackrock ( email )

400 Howard Street
San Francisco, CA 94105
United States

Joanna Nash

Blackrock ( email )

400 Howard Street
San Francisco, CA 94105
United States

Ryan LaFond

Algert Global, LLC ( email )

One Maritime Plaza
Suite 1525
San Francisco, CA 94111
United States

Hussein Safa

Blackrock ( email )

400 Howard Street
San Francisco, CA 94105
United States

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