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ESG risk, economic policy uncertainty, and the downside risk: Evidence from US firms

Author

Listed:
  • Tang, Chia-Hsien
  • Liu, Hung-Chun
  • Lee, Yen-Hsien
  • Hsu, Yuan-Teng

Abstract

This study investigates the relationship between risk factors of Environmental, Social, and Governance (ESG) and the downside risk of U.S. firms and tackles the role of economic policy uncertainty (EPU) in this relationship. Our results show that the downside risk of firms, as measured by value-at-risk and lower partial moment, is positively affected by ESG risk scores, and that this effect becomes more pronounced as EPU rises. These results are robust to two other alternative measures of ESG risk. We argue that enhancing ESG management and adaptability to economic uncertainty is crucial for aligning with sustainable development goals. Our findings provide valuable insights for U.S. firms, investors, and policymakers looking to navigate the evolving risk landscape.

Suggested Citation

  • Tang, Chia-Hsien & Liu, Hung-Chun & Lee, Yen-Hsien & Hsu, Yuan-Teng, 2025. "ESG risk, economic policy uncertainty, and the downside risk: Evidence from US firms," The North American Journal of Economics and Finance, Elsevier, vol. 75(PA).
    • Handle: RePEc:eee:ecofin:v:75:y:2025:i:pa:s1062940824002183
    DOI: 10.1016/j.najef.2024.102293
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    Cited by:

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    2. Nguyen, Dat Thanh & Tran, Vuong Thao & Phan, Dinh Hoang Bach & Nguyen, Quang Thi Thieu, 2025. "Unmanaged ESG risks and corporate performance – The impact of management gaps," Finance Research Letters, Elsevier, vol. 83(C).
    3. Kuziboev, Bekhzod & Ozturk, Ilhan & Kalandarov, Feruz & Samandarov, Ogabek & Bekjanov, Dilmurad & Makhmudov, Samariddin, 2025. "Promoting energy sources diversification through ESG performance," Energy, Elsevier, vol. 324(C).
    4. Niu, Niu & Zhang, Bin & Song, Yanwu & Boateng, Agyenim, 2025. "Climate policy uncertainty and ESG performance of energy firms: The moderating effect of cloud computing technology," International Review of Financial Analysis, Elsevier, vol. 108(PA).
    5. Long, Rui & Fan, Zhaobin, 2025. "The impact of ESG performance on the perception of economic policy uncertainty: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 1456-1474.
    6. Chang, Dongfeng & Li, Jin & Miao, Chenglin, 2025. "Economic policy uncertainty and financial innovations: A perspective from spillovers in energy exchange-traded funds," Energy Economics, Elsevier, vol. 150(C).
    7. Ayadi, Imen & Abderrahman, Jahmane, 2025. "The impact of economic policy uncertainty and digital integration on ESG practices in European companies," Research in International Business and Finance, Elsevier, vol. 76(C).

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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