Asymmetric impact of ESG performance on systematic risk: exploring beta plus and beta minus dynamics

What the paper says

Purpose Building on the theoretical model of Albuquerque et al. (2018), this study analyzes the relationship between environmental, social and governance (ESG) performance and systematic risk. It examines how overall ESG scores and their individual pillars (ESG) relate to the asymmetric components of beta: Beta+ (sensitivity to market upswings) and Beta- (sensitivity to downturns). Design/methodology/approach Using a dataset of 9,643 firms from 89 countries, the study tests the ESG–risk relationship with pooled ordinary least squares and first-difference regressions to mitigate endogeneity concerns. Findings Contrary to the prevailing view that high ESG performance lowers risk, the results show that higher ESG scores are associated with greater systematic risk. ESG is positively and significantly related to both Beta+ and Beta-, suggesting that ESG performance amplifies firms' sensitivity to market movements. The effect is particularly strong during bull markets, while downside protection is limited. This pattern is consistent with demand-driven crowding into ESG assets and valuation premia that increase firms' co-movement with the market. Originality/value This study advances the literature by decomposing systematic risk into asymmetric betas and linking them to ESG performance. Unlike prior work focusing only on aggregate beta, this approach uncovers directional effects. The use of a large global sample and a first-difference design strengthens robustness, while the findings challenge the conventional assumption of ESG as downside insurance, showing instead that it may increase market covariance.