A0276
Title: Integrating ESG performance in traditional risk measures of mutually dependent risks
Authors: Tomer Shushi - Ben Gurion University of the Negev (Israel) [presenting]
Abstract: Recently, socially responsible investments have gained much attention. Environmental, social, and governance (ESG) scores quantify a company's environmental and societal contributions. Traditional risk measures such as expected utility measures and tail-value-at-risk provide different frameworks for measuring risks based on their historical data. The mean-variance measure measures a portfolio risk while capturing the investor's level of risk aversion. A new framework is proposed for incorporating the investor's ESG performance when measuring the risks. The proposed approach provides a way to modify traditional risk measures such that the ESG risk scores are considered. Fundamental features of the proposed approach are explored, which also involves finding the optimal weights from a portfolio containing different stock returns, each having a different ESG score, based on the ESG performance of its company.
