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Measuring ESG risks in multi-asset portfolios: Decomposing VaRESG into CVaRESG

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  • Capelli, Paolo
  • Ielasi, Federica
  • Russo, Angeloantonio

Abstract

This study investigates the contribution of different asset classes to investment portfolio risk by integrating environmental, social, and governance (ESG) factors into traditional financial risk measures. We propose a new methodology for decomposing VaRESG by measuring the Component VaRESG (CVaRESG) of a multi-asset financial portfolio. A pilot empirical application's results provide evidence of the reliability of CVaRESG to define the maximum contribution of the risk accepted for securities or parts of the financial portfolio. This study contributes to the debate on how ESG factors can have quantifiable long-term financial impacts and clarifies the risk contribution of each security included in a financial portfolio.

Suggested Citation

  • Capelli, Paolo & Ielasi, Federica & Russo, Angeloantonio, 2024. "Measuring ESG risks in multi-asset portfolios: Decomposing VaRESG into CVaRESG," Finance Research Letters, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:finlet:v:66:y:2024:i:c:s1544612324007220
    DOI: 10.1016/j.frl.2024.105692
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    More about this item

    Keywords

    Component value-at-risk; ESG risk; Financial portfolio decomposition; Market risk; VaR; Volatility;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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