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The environmental pillar of ESG and financial performance: A portfolio analysis

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  • Agliardi, Elettra
  • Alexopoulos, Thomas
  • Karvelas, Kleanthis

Abstract

Our research uses the environmental pillar of ESG as a proxy for environmental corporate social responsibility. We examine the performance of environmentally clustered portfolios by using simple quantitative investment strategies with optimum asset rotation. Post-hoc, sample-split analysis with non-parametric tests is performed. The results suggest that both environmental status and dynamic environmental performance are key characteristics of divergent financial behaviors. We show that environmentally low-rated companies present better financial performance, while environmental leaders are less risky and show more resilience. Assets with a dynamic environmental profile outperform on average in terms of returns and risk. Furthermore, supporting evidence of positive spillovers in high-rated environmental clusters is identified after the Paris Agreement. We evaluate the resilience of the environmental clusters during the COVID-19 crisis and the Russia-Ukraine war effect.

Suggested Citation

  • Agliardi, Elettra & Alexopoulos, Thomas & Karvelas, Kleanthis, 2023. "The environmental pillar of ESG and financial performance: A portfolio analysis," Energy Economics, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:eneeco:v:120:y:2023:i:c:s0140988323000968
    DOI: 10.1016/j.eneco.2023.106598
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    Cited by:

    1. Michele Azzone & Maria Chiara Pocelli & Davide Stocco, 2023. "Hedging carbon risk with a network approach," Papers 2311.12450, arXiv.org, revised Mar 2024.

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    More about this item

    Keywords

    Corporate environmental responsibility; ESG; Portfolio rebalancing; ART Anova; Post-hoc analysis; Paris agreement; COVID-19 crisis; Russia-Ukraine war effect;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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