Do lower environmental, social, and governance (ESG) rated companies have higher systemic impact? Empirical evidence from Europe and the United States

In recent years, companies have increasingly been characterized by environmental, social, and governance (ESG) scores, and investors and academics have raised questions concerning financial performance and investment risks. Now, as the European Banking Authority has acknowledged that ESG risks can potentially impact the economic and financial system, the debate on systemic risk has gained traction. Understanding the relationship between ESG merit and systemic risk is of utmost importance for the stability of the economic and financial system, still, research is limited. Relying on real‐world European and United Stated data, we quantify systemic risk by means of QL‐CoVaR. Empirical analyses of the entire period from 2007 to 2021 show that companies with high ESG scores tend to exhibit low QL‐CoVaR values indicating a positive effect of ESG scores. Such evidence is confirmed by clustering the individual companies into ESG portfolios and focusing on COVID‐19. Additional insights using the individual pillars are also provided.

Do lower environmental, social, and governance (ESG) rated companies have higher systemic impact? Empirical evidence from Europe and the United States

In recent years, companies have increasingly been characterized by environmental, social, and governance (ESG) scores, and investors and academics have raised questions concerning financial performance and investment risks. Now, as the European Banking Authority has acknowledged that ESG risks can potentially impact the economic and financial system, the debate on systemic risk has gained traction. Understanding the relationship between ESG merit and systemic risk is of utmost importance for the stability of the economic and financial system, still, research is limited. Relying on real-world European and United Stated data, we quantify systemic risk by means of QL-CoVaR. Empirical analyses of the entire period from 2007 to 2021 show that companies with high ESG scores tend to exhibit low QL-CoVaR values indicating a positive effect of ESG scores. Such evidence is confirmed by clustering the individual companies into ESG portfolios and focusing on COVID-19. Additional insights using the individual pillars are also provided.

Do diverse and inclusive workplaces benefit investors? An Empirical Analysis on Europe and the United States

As the COVID-19 pandemic restrictions slow down, employees start to return to their offices. Hence, the discussions on optimal workplaces and issues of diversity and inclusion have peaked. Previous research has shown that employees and companies benefit from positive workplace changes. This research questions whether allowing for diversity and inclusion criteria in portfolio construction is beneficial to investors. By considering the new Diversity & Inclusion (D&I) score by Refinitiv, I find evidence that investors might suffer lower returns and pay for investing in responsible (i.e., more diverse and inclusive) employers in both the US and European market.