Sustainable investing with ESG rating uncertainty

• 成果类型: Article
• 署名作者: Avramov, Doron; Cheng, Si; Lioui, Abraham; Tarelli, Andrea
• 署名单位: Reichman University; Chinese University of Hong Kong; Universite Catholique de Lille; EDHEC Business School; Catholic University of the Sacred Heart
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.09.009
• 发表日期: 2022
• 页码: 642-664
• 关键词: esg; Rating uncertainty; portfolio choice; Capital asset pricing model

摘要

This paper analyzes the asset pricing and portfolio implications of an important barrier to sustainable investing: uncertainty about the corporate ESG profile. In equilibrium, the market premium increases and demand for stocks declines under ESG uncertainty. In addition, the CAPM alpha and effective beta both rise with ESG uncertainty and the negative ESG-alpha relation weakens. Employing the standard deviation of ESG ratings from six major providers as a proxy for ESG uncertainty, we provide supporting evidence for the model predictions. Our findings help reconcile the mixed evidence on the cross-sectional ESG-alpha relation and suggest that ESG uncertainty affects the risk-return trade-off, social impact, and economic welfare. (C) 2021 Elsevier B.V. All rights reserved.