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Return trade-offs between environmental and social pillars of ESG scores

Author

Listed:
  • Yusifzada, Leyla
  • Lončarski, Igor
  • Czupy, Gergely
  • Naffa, Helena

Abstract

Our analysis explores the trade-off between environmental and social factors, as we observe that the environmental and social performances of firms are negatively correlated across industries. We find that, from 2013 to 2022, firms with high environmental scores but low social scores outperformed those with low environmental scores but high social scores by an average of 0.39% per month. However, this outperformance diminished when the investment horizon began in 2016. We find that in the period following 2016, public markets began to signal an equal importance for both environmental and social pillars. Therefore, policy frameworks should aim to balance both environmental and social objectives to address the disparities created by regulations that favour one aspect of sustainability over the other.

Suggested Citation

  • Yusifzada, Leyla & Lončarski, Igor & Czupy, Gergely & Naffa, Helena, 2025. "Return trade-offs between environmental and social pillars of ESG scores," Research in International Business and Finance, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:riibaf:v:75:y:2025:i:c:s0275531925000352
    DOI: 10.1016/j.ribaf.2025.102779
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    More about this item

    Keywords

    ESG investing; Portfolios; Sustainable finance; SRI; Social sustainability; Environmental sustainability;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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