ESG risk exposure: a tale of two tails

This paper studies the ESG impact to the downside risk of companies in the US market by introducing a novel measure, the ESG risk contribution (Delta CoESGRisk). Delta CoESGRisk is a measurement based on the co-movement between the ESG risk factor and the downside risk. When there is a sudden increase in the ESG risk factor, the downside risk of high-ESG companies is reduced. However, under extreme conditions, the downside risk of high-ESG companies could also be increased, due to the increased company volatility. The ESG impact is positively correlated with the ESG performance and size, and it varies among sectors.