期刊
INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS
卷 87, 期 -, 页码 -出版社
ELSEVIER SCIENCE INC
DOI: 10.1016/j.irfa.2023.102513
关键词
ESG scores; Risk; Dependence; Tail dependence; Vine copula models
This paper questions whether ESG scores can provide information on a company's riskiness. By analyzing the (tail) dependence structure of companies with different ESG scores using high-dimensional vine copula modeling, it is shown that risk can depend on and be directly associated with a specific ESG rating class. Empirical findings on real-world data reveal positive and non-negligible ESG risks determined by ESG scores, especially during the 2008 crisis.
While environmental, social, and governance (ESG) trading activity has been a distinctive feature of financial markets, the debate if ESG scores can also convey information regarding a company's riskiness remains open. Regulatory authorities, such as the European Banking Authority (EBA), have acknowledged that ESG factors can contribute to risk. Therefore, it is important to model such risk dependencies and quantify what part of a company's riskiness can be attributed to the ESG scores. This paper aims to question whether ESG scores can be used to provide information on (tail) riskiness. By analyzing the (tail) dependence structure of companies with a range of ESG scores, that is within an ESG rating class, using high-dimensional vine copula modeling, we are able to show that risk can also depend on and be directly associated with a specific ESG rating class. Empirical findings on real-world data show positive not negligible ESG risks determined by ESG scores, especially during the 2008 crisis.
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