ESG Risk Exposure: A Tale of Two Tails

Abstract

This paper studies the ESG impact to the downside risk of companies in the US market by introducing a novel measure, the ESG risk contribution (1CoESGRisk). 1CoESGRisk is a measurement based on the co-movement between the ESG risk factor and the downside risk. When there is a sudden increase in the ESG risk factor, the downside risk of highESG companies is reduced. However, under extreme conditions, the downside risk of highESG companies could also be increased, due to the increased volatility. The ESG impact is positively correlated with the ESG performance and size, and it varies among sectors.

Keywords: ESG, ESG Risk Factor, Fama/MacBeth Risk Factor, Quantile Regression, Co-