ESG Investing: A Chance To Reduce Systemic Risk

25 Pages Posted: 25 Jun 2020 Last revised: 4 Aug 2022

See all articles by Roy Cerqueti

Roy Cerqueti

University Sapienza Rome

Rocco Ciciretti

Tor Vergata University of Rome - Department of Economics and Finance

Ambrogio Dalò

University of Gronigen - Faculty of Economics and Business

Marco Nicolosi

University of Perugia - Department of Economics

Date Written: June 19, 2020

Abstract

We consider a network of equity mutual funds characterized by different levels of compliance with Environmental, Social, and Governance (ESG) aspects. We measure the impact of portfolio liquidation in a stress scenario on funds with different ESG rates. Fire sales spillover from portfolio liquidation propagates from one fund to another because of indirect contagion mediated by common asset holdings. We find that the vulnerability of funds to contagion decreases with the level of ESG compliance. Contagion is less effective for higher ranked funds than for lower ranked ones. In particular, for different levels of portfolio liquidation, the relative market value loss of the highest ESG ranked funds is lower than the loss experienced by the lowest ESG ranked counterpart.

Keywords: ESG investing, Systemic Risk, Market Impact, Network, Indirect Contagion

JEL Classification: G32, C02

Suggested Citation

Cerqueti, Roy and Ciciretti, Rocco and Dalò, Ambrogio and Nicolosi, Marco, ESG Investing: A Chance To Reduce Systemic Risk (June 19, 2020). CEIS Working Paper No. 498, Available at SSRN: https://ssrn.com/abstract=3631205 or http://dx.doi.org/10.2139/ssrn.3631205

Roy Cerqueti

University Sapienza Rome ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

Rocco Ciciretti (Contact Author)

Tor Vergata University of Rome - Department of Economics and Finance ( email )

Via Columbia, 2
Roma, 00133
Italy
+39 06 72595925 (Phone)

HOME PAGE: http://www.roccociciretti.com/

Ambrogio Dalò

University of Gronigen - Faculty of Economics and Business ( email )

Nettelbosje 2
Groningen, Groningen 9747 AE
Netherlands
+31 50 36 37194 (Phone)

HOME PAGE: http://https://sites.google.com/view/ambrogiodalo/home

Marco Nicolosi

University of Perugia - Department of Economics ( email )

via Pascoli, 20
PG 06123 Perugia, 06123
Italy

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