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The risk of social responsibility -- is it systematic?

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  • Gregor Dorfleitner
  • Gerhard Halbritter
  • Mai Nguyen

Abstract

This paper empirically investigates the risk characteristics of three environmental, social and corporate governance (ESG) rating concepts commonly used for assessing corporate social performance (CSP). Analogous to financial returns, investors are subject to the risk of changes in the average ESG level of their portfolio which is denoted as ESG risk. This is of special interest to private and institutional investors focused on a socially responsible investment strategy. Moreover, a growing number of financial products, such as mutual funds, include sustainability objectives. With a large data set including the scores of three important ESG rating agencies, the paper further examines the convergence of ESG risk among different rating providers. Applying a regression-based approach, the paper provides evidence that ESG ratings are subject to a non-diversifiable risk component. Investors are therefore not able to fully avoid ESG risk by diversification. Furthermore, the three rating concepts are not convergent with respect to ESG risk.

Suggested Citation

  • Gregor Dorfleitner & Gerhard Halbritter & Mai Nguyen, 2016. "The risk of social responsibility -- is it systematic?," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 6(1), pages 1-14, January.
    • Handle: RePEc:taf:jsustf:v:6:y:2016:i:1:p:1-14
    DOI: 10.1080/20430795.2015.1123993
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    Cited by:

    1. Peixin Li & Rongxi Zhou & Yahui Xiong, 2020. "Can ESG Performance Affect Bond Default Rate? Evidence from China," Sustainability, MDPI, vol. 12(7), pages 1-12, April.
    2. Khan, Muhammad Arif, 2022. "ESG disclosure and Firm performance: A bibliometric and meta analysis," Research in International Business and Finance, Elsevier, vol. 61(C).
    3. Bax, Karoline & Sahin, Özge & Czado, Claudia & Paterlini, Sandra, 2023. "ESG, risk, and (tail) dependence," International Review of Financial Analysis, Elsevier, vol. 87(C).
    4. Rehman, Mobeen Ur & Ahmad, Nasir & Vo, Xuan Vinh, 2022. "Asymmetric multifractal behaviour and network connectedness between socially responsible stocks and international oil before and during COVID-19," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 587(C).
    5. Gangi, Francesco & Meles, Antonio & Monferrà, Stefano & Mustilli, Mario, 2020. "Does corporate social responsibility help the survivorship of SMEs and large firms?," Global Finance Journal, Elsevier, vol. 43(C).
    6. Irina-Eugenia Iamandi & Laura-Gabriela Constantin & Sebastian Madalin Munteanu & Bogdan Cernat-Gruici, 2019. "Mapping the ESG Behavior of European Companies. A Holistic Kohonen Approach," Sustainability, MDPI, vol. 11(12), pages 1-41, June.
    7. Karoline Bax & Ozge Sahin & Claudia Czado & Sandra Paterlini, 2021. "ESG, Risk, and (Tail) Dependence," Papers 2105.07248, arXiv.org, revised Nov 2021.

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