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Risk and Return Opportunities of ESG Investing: Evidence from Global Markets

As the challenges of global climate change are deeply embedded in the fabric of our economic system, their solution needs to be more integrated so as to engage with a broad range of stakeholders-investors and business leaders in particular. Despite the growing market interest in environmental, social and governance (ESG) integration, there still remains a widespread perception among private investors that explicitly managing environmental risks will likely reduce investment returns. Even within the academic community, there have been inconclusive debates in the literature on whether firm's environmental performance is compatible with financial outcomes.

SFI’s research on “Risk and Return Opportunities of ESG Investing” seeks to clarify the return-risk relationship of low-carbon investing (i.e. whether ESG integration can lower risks and/or generate returns), and to understand how firm's environmental performance and its improvement are perceived in global financial markets. Combining environmental engineering, financial economics and advanced data technologies, we investigate whether and how much integrating environmental factors can provide extra risk-adjusted returns in addition to doing so with traditional financial factors.

In our latest study, we have demonstrated that there is positive and statistically significant risk-adjusted return opportunities from low-carbon investing in the US market. As we are expanding our analysis on global scale, we expect to advance our understanding of ESG integration and investing from geological, economic and social science perspectives.



Project in Progress:

  • In, S.Y., K.Y. Park and A. Monk “Decarbonization, Stock Returns, and Firm Characteristics: Evidence from Global Markets.