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Is ESG risk priced in cryptocurrencies?

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  • Han, SeungOh

Abstract

While ESG risk pricing is well-documented in conventional assets, its role in the cryptocurrency market remains unexplored. We address this gap by examining the cross-sectional pricing of ESG risk in cryptocurrencies from May 2018 to December 2024. Using aggregate innovations in the S&P Global 1200 Scored & Screened Index, we find a robust inverted U-shaped relationship between ESG beta and expected returns. At the portfolio level, assets with intermediate ESG sensitivities outperform those with extreme exposures, yielding a significant weekly 4-factor alpha of 2.868%. This non-linearity is driven by speculative demand for positive ESG-beta assets rather than a hedging motive for negative-beta ones. At the individual asset level, Fama and MacBeth (1973) regressions confirm this result, showing a negative premium for squared (or absolute) ESG beta after controlling for market, size, reversal, and liquidity risk factors. Notably, the effect is concentrated in assets with lottery-like characteristics, suggesting that behavioral biases contribute to the observed non-linearity. These findings are robust to a comprehensive battery of tests.

Suggested Citation

  • Han, SeungOh, 2026. "Is ESG risk priced in cryptocurrencies?," Finance Research Letters, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finlet:v:97:y:2026:i:c:s1544612326003041
    DOI: 10.1016/j.frl.2026.109774
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