Environmental, Social, and Governance Criteria: Why Investors are Paying Attention

27 Pages Posted: 6 Dec 2017

See all articles by Ravi Jagannathan

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

Ashwin Ravikumar

Amherst College

Marco Sammon

Kellogg School of Management - Department of Finance

Date Written: November 2017

Abstract

We find that money managers could reduce portfolio risk by incorporating Environmental, Social, and Governance (ESG) criteria into their investment process. ESG-related issues can cause sudden regulatory changes and shifts in consumer tastes, resulting in large asset price swings which leave investors limited time to react. By incorporating ESG criteria in their investment strategy, money managers can tilt their holdings towards firms which are well prepared to deal with these changes, thereby managing exposure to these rare but potentially large risks.

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Suggested Citation

Jagannathan, Ravi and Ravikumar, Ashwin and Sammon, Marco, Environmental, Social, and Governance Criteria: Why Investors are Paying Attention (November 2017). NBER Working Paper No. w24063. Available at SSRN: https://ssrn.com/abstract=3082225

Ravi Jagannathan (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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National Bureau of Economic Research (NBER)

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Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
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China

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Ashwin Ravikumar

Amherst College

Marco Sammon

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

HOME PAGE: http://marcosammon.com/

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