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ESG preferences, risk and return

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  • Bradford Cornell

Abstract

There are two primary factors that affect expected returns for companies with high ESG (environmental, social and governance) ratings—investor preferences and risk. Although investor preferences for highly rated ESG companies can lower the cost of capital, the flip side of the coin is lower expected returns for investors. Regarding risk, the jury remains out on whether there is an ESG‐related risk factor. However, to the extent, ESG is a risk factor it also points towards lower expected returns for investments in highly rated companies. Though ESG investing may have social benefits, higher expected returns for investors are not among them.

Suggested Citation

  • Bradford Cornell, 2021. "ESG preferences, risk and return," European Financial Management, European Financial Management Association, vol. 27(1), pages 12-19, January.
    • Handle: RePEc:bla:eufman:v:27:y:2021:i:1:p:12-19
    DOI: 10.1111/eufm.12295
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    References listed on IDEAS

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