Corvinus
Corvinus

Are ESG factors truly unique?

Covachev, Svetoslav ORCID: https://orcid.org/0000-0002-2364-8024, Martel, Jocelyn and Brito-Ramos, Sofia (2025) Are ESG factors truly unique? North American Journal of Economics and Finance, 77 . DOI 10.1016/j.najef.2025.102386

[img] PDF - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
2MB

Official URL: https://doi.org/10.1016/j.najef.2025.102386


Abstract

The growing popularity of ESG investing raises questions about whether ESG and carbon factors represent unique sources of systematic risk or are absorbed by traditional equity factors. We find that the systematic components of recently proposed carbon and ESG risk factors are linear combinations of well-known risk factors. The ESG factor has a positive exposure to large firms, high beta firms and to the safety factor (a subcomponent of the quality factor). The carbon factor has positive exposure to the market and safety factors and negative loadings on the size and profitability factors. Furthermore, investors who follow well-known ESG indexes are exposed to market and size factor risks, and not always to the ESG and carbon factors. Such indexes are nevertheless closely related to the “long leg” of the ESG factor. Overall, the evidence suggests that the ESG and carbon factors are subordinated to other factors, highlighting the importance of leveraging established risk factors to account for ESG and carbon risks.

Item Type:Article
Uncontrolled Keywords:ESG ; Carbon factor ; Corporate social responsibility ; Investment decisions ; Risk factors ; ESG indexes
JEL classification:G11 - Portfolio Choice; Investment Decisions
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
Divisions:Institute of Finance
Subjects:Energy economy
Environmental economics
Funders:ESSEC-Amundi Chair on Asset and Risk Management
DOI:10.1016/j.najef.2025.102386
ID Code:11000
Deposited By: MTMT SWORD
Deposited On:11 Mar 2025 14:37
Last Modified:11 Mar 2025 14:37

Repository Staff Only: item control page

Downloads

Downloads per month over past year

View more statistics