ESG Ratings and Risk Dynamics: Unveiling the Connection to Downside and Crash Risk Metrics
Abstract/Description
This study examines the relationship between Environmental, Social, and Governance (ESG) performance and downside risk measures within the context of firm-based characteristics. Using regression analysis, we analyze data on ESG scores, returns, return on equity, leverage, log market value, log book-to-market ratio, and beta across various downside risk metrics. Results indicate that higher past ESG performance is associated with reduced Value at Risk and Expected Shortfall, suggesting a potential risk-mitigating effect. However, the impact of ESG on non-crisis skewness, downside variance, and skewness of returns appears less significant. These findings highlight the importance of considering ESG factors in risk assessment and management strategies, particularly in extreme market conditions, while acknowledging the multifaceted nature of downside risk determinants.
Keywords
Track
Finance
Session Number/Theme
4A: Finance
Session Chair
Dr. Saqib Sharif ; Dr. Mujeeb Bhayo
Start Date/Time
31-5-2024 9:00 AM
End Date/Time
31-5-2024 10:30 AM
Location
MCS – 3 AMAN CED Building
Recommended Citation
Awan, A. (2024). ESG Ratings and Risk Dynamics: Unveiling the Connection to Downside and Crash Risk Metrics. 3rd IBA SBS International Conference 2024. Retrieved from https://ir.iba.edu.pk/sbsic/2024/program/45
COinS
ESG Ratings and Risk Dynamics: Unveiling the Connection to Downside and Crash Risk Metrics
MCS – 3 AMAN CED Building
This study examines the relationship between Environmental, Social, and Governance (ESG) performance and downside risk measures within the context of firm-based characteristics. Using regression analysis, we analyze data on ESG scores, returns, return on equity, leverage, log market value, log book-to-market ratio, and beta across various downside risk metrics. Results indicate that higher past ESG performance is associated with reduced Value at Risk and Expected Shortfall, suggesting a potential risk-mitigating effect. However, the impact of ESG on non-crisis skewness, downside variance, and skewness of returns appears less significant. These findings highlight the importance of considering ESG factors in risk assessment and management strategies, particularly in extreme market conditions, while acknowledging the multifaceted nature of downside risk determinants.
