A0513
Title: Responsible investing: ESG risk budgeting
Authors: Runfeng Yang - Ca\' Foscari University of Venice (Italy) [presenting]
Abstract: A new risk budgeting framework is proposed based on the ESG risk factor, a risk factor which captures market realization of ESG scores, in addition to the traditional setting based on ESG scores. Empirical analysis of the European stock market from 2013 to 2022 reveals limited evidence of ESG impact on the Sharpe ratio. Significant effects are found in specific sector/ESG groups and during extreme market events. Notably, actively pursuing ESG risk exposure may significantly impair risk-return trade-offs, with the impact influenced by the choice of ESG score datasets. These findings point out the complexities of including ESG factors in investment and emphasize the need for careful risk management in handling these issues.
