The rising sustainability awareness among regulators, consumers and investors results in major sustainability risks for firms. We construct three ESG risk factors (Environmental, Social, and Governance) to quantify the ESG risk exposures of firms. Taking these factors into account significantly...

We study the effect of environmental, social and governance (ESG) scores on the portfolio allocations of institutional investors. Using a unique data set, we find that institutional investor holdings (as measured by 13F filings) are strongly driven by the ESG quality of companies. While...

Using survey data from a sample of senior investment professionals from mainstream (i.e. not SRI funds) investment organizations we provide insights into why and how investors use reported environmental, social and governance (ESG) information. Relevance to investment performance is the most...

As part of the Next Generation EU (NGEU) program, the European Commission has pledged to issue up to EUR 250 billion of the NGEU bonds as green bonds, in order to confirm their commitment to sustainable finance and to support the transition towards a greener Europe. Thereby, the EU is not only...

I show that the performance of ESG investments is strongly driven by price-pressure arising from flows towards sustainable funds, causing high realized returns that do not reflect high expected returns. The coefficient linking ESG flows and realized returns is the product of two factors: The...

This paper studies the impact of environmental, social, and governance (ESG) ratings on investors' preferences and stock prices. We exploit a change in ESG rating methodology that non-linearly shifted ESG ratings for firms as a natural experiment. We show that the 'pseudo'-changes in the ESG...

This paper investigates the relationship between ESG scores and stock prices. Further to previous research we add ESG revisions to the overall level of ESG scores. We propose an ESG life cycle framework, which we decompose into four clusters. Each of these clusters exhibits different...

The idea behind the optimal ESG portfolio (OESGP) is to expand the mean variance theory by adding the portfolio ESG value (PESGV) multiplied by the ESG strength parameter γ (which is investor’s choice) to the minimizing objective function (Pederson et al., 2019; Schmidt, 2020). PESGV is assumed...

This paper investigates the role of countries' environmental, social and governance (ESG) performance in sovereign CDS markets. Based on data for 60 countries from 2007 to 2017, we find that countries with superior ESG performance do not only show lower credit default swap (CDS) spreads, they...

Using 2010-2019 stock-level data in US, we examine whether and how retail investors trade on environmental, social, and government (ESG) information. Although retail investors trade more on ESG disclosed stocks than no-disclosed stocks, ESG disclosure information does not help retail investors...