20 Pages Posted: 20 Sep 2016
Date Written: September 19, 2016
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: 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