Ahmed, M. F., Gao, Y. and Satchell, S.

Modelling Demand for ESG

European Journal of Finance, accepted

(2021)

Abstract: Existing approaches have considered characteristics of Environmental, Social and Corporate Governance (ESG) focused investments from a return-oriented perspective without 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 utility which does not come at the cost of return performance.

Keywords: ESG, Sustainable Investing, Demand Model, Investors’ Utility

JEL Codes: G11, G14, G17, G23, G41

Author links:

Publisher's Link: https://doi.org/10.1080/1351847X.2021.1924216