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
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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 |
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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 |
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