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Modelling Demand for ESG

Author

Listed:
  • Ahmed, M. F.
  • Gao, Y.
  • Satchell, S.

Abstract

Existing approaches have considered characteristics of Environmental, Social and Governance (ESG) focused investments from a return-oriented perspective, not paying due consideration to investors’ utility and how ESG features impact utility. We contribute to this literature by providing a model that captures the implications for investment if ESG is valued by the investor as well as wealth. We first present the necessary theory and discuss the rather challenging problem of calibration of the various risk and preference parameters. Using Thomson Reuters ESG data from 2002 to 2018, we provide further empirical evidence that investors who value ESG factors have improved utilities which does not come at the cost of return performance.

Suggested Citation

  • Ahmed, M. F. & Gao, Y. & Satchell, S., 2020. "Modelling Demand for ESG," Cambridge Working Papers in Economics 2093, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2093
    Note: mfa30
    as

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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2093.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    ESG; Sustainable Investing; Demand Model; Investors’ Utility;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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