A1467
Title: Do lower ESG-rated companies have a higher systemic impact: Empirical evidence from Europe and the United States
Authors: Karoline Bax - University of Trento (Italy)
Giovanni Bonaccolto - University of Enna Kore (Italy)
Sandra Paterlini - University of Trento (Italy) [presenting]
Abstract: In recent years, companies have increasingly been characterized by environmental, social and governance (ESG) scores, and investors like academics have raised questions concerning financial performance and investment risks. Now, as the EBA has acknowledged that ESG risks can potentially impact the financial system, the debate on systemic risk has risen. While understanding the relationship between ESG merit and systemic risk is of utmost importance for the financial system's stability, only scarce knowledge still exists. Relying on real-world European and American data, we quantify the systemic risk impact by means of QL-CoVaR. Empirical analysis of the entire period from 2007-2021 shows that companies with a high ESG score tend to exhibit lower QL-CoVaR values than lower-rated companies indicating a positive effect of ESG scores. Such evidence is also confirmed by clustering the individual companies into ESG portfolios, and becomes clearer focusing on Covid-19
