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ESG and Firm Risk: Evidence in Korea

Author

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  • Tokhir Gaybiddinovich Khorilov

    (School of Business, Yeungnam University, Gyeongsan 38541, Republic of Korea)

  • Jungmu Kim

    (School of Business, Yeungnam University, Gyeongsan 38541, Republic of Korea)

Abstract

This study examines the intricate relationship between ESG considerations and risk profiles of firms by presenting a comprehensive analysis of total, systematic, and idiosyncratic risks. Using 7834 firm-year observations from 2011 to 2022 in the Korean market, the findings reveal that ESG engagement effectively reduces total, systematic, and idiosyncratic risks. Especially noteworthy is the fact that the reduction in systematic risk, a discovery associated with ESG engagement in medium-sized firms, remains concealed when examining only the total risk. During the COVID-19 crisis, ESG remained valuable in lowering total and idiosyncratic risks but paradoxically increased systematic risk in certain circumstances. These findings emphasize the risk-mitigating potential of ESG, advocating customized strategies based on firm size. They also underscore the resilience of firms that are dedicated to ESG practices during a crisis. Investors may enhance risk-adjusted returns and mitigate overall portfolio risk by integrating ESG factors into their investment strategies, with the importance of tailoring such strategies emphasized, while governments should develop policies incentivizing ESG engagement and allocating resources for ESG-related initiatives.

Suggested Citation

  • Tokhir Gaybiddinovich Khorilov & Jungmu Kim, 2024. "ESG and Firm Risk: Evidence in Korea," Sustainability, MDPI, vol. 16(13), pages 1-18, June.
    • Handle: RePEc:gam:jsusta:v:16:y:2024:i:13:p:5388-:d:1421639
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    Cited by:

    1. Luning Tong & Maowei Chen, 2024. "The Impact of Female Director Background on the ESG Performance of Chinese Technology Firms: A Moderating Effect Based on Risk Appetite," Sustainability, MDPI, vol. 16(23), pages 1-20, December.
    2. Kim, Minji & Yu, Hye-Kyung & Kim, Tohyun, 2025. "The contingent effects of foreign ownership on ESG performance under financial performance feedback," Finance Research Letters, Elsevier, vol. 78(C).

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