Scandinavian Working Papers in Economics
Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies
No 488: Is Corporate Social Responsibility investing a free lunch? The relationship between ESG, tail risk, and upside potential of stocks before and during the COVID-19 crisis
Hans Lööf (), Maziar Sahamkhadam () and Andreas Stephan ()
Additional contact information
Hans Lööf: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology
Maziar Sahamkhadam: Linnaeus University
Andreas Stephan: Jönköping International Business School and CESIS, KTH
Abstract: Did Corporate Social Responsibility investing benefit shareholders during the COVID-19 pandemic crisis? Distinguishing between downside tail risk and upside reward potential of stock returns, we provide evidence from 5,073 stocks listed on stock markets in ten countries. The findings suggests that better ESG ratings are associated with lower downside risk, but also with lower upside return potential. Thus, ESG ratings help investors to reduce their risk exposure to the market turmoil caused by the pandemic, while maintaining the fundamental trade-off between risk and reward.
Keywords: ESG; COVID 19; downside risk; upside potential; Sustainalytics; financial markets
26 pages, May 27, 2021
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