NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Environmental, Social, and Governance Criteria: Why Investors are Paying Attention

Ravi Jagannathan, Ashwin Ravikumar, Marco Sammon

NBER Working Paper No. 24063
Issued in November 2017
NBER Program(s):The Asset Pricing Program, The Environment and Energy Program

We find that money managers could reduce portfolio risk by incorporating Environmental, Social, and Governance (ESG) criteria into their investment process. ESG-related issues can cause sudden regulatory changes and shifts in consumer tastes, resulting in large asset price swings which leave investors limited time to react. By incorporating ESG criteria in their investment strategy, money managers can tilt their holdings towards firms which are well prepared to deal with these changes, thereby managing exposure to these rare but potentially large risks.

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Document Object Identifier (DOI): 10.3386/w24063

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