Working Papers
- ESG and Geopolitics: Stock Returns in the Ukraine-Russia Conflict (Job Market Paper)
- Geopolitical events have emerged as critical drivers of financial market uncertainty. The recent Ukraine-Russia conflict, followed by an energy shortage, has had profound consequences on both financial and energy markets, emphasizing ESG as a corporate risk factor. This paper aims to explore the interplay between stock returns, geopolitical risk and the role of ESG during the Ukraine-Russia conflict. Employing an event study methodology complemented by a Difference-in-Difference (DiD) analysis, the study finds a positive ESG-return relationship during the first quarter of the conflict, which subsequently dissipates, reverting to neutrality. Furthermore, this paper extends the explanations of Pedersen et al. (2021)’s E-CAPM and finds that firms with superiority in particular ESG pillars have inherent properties of high profitability and, more importantly, enhanced resilience to corporate-level geopolitical and energy risks. These attributes have contributed to their superior performance compared to low-ESG firms during the geopolitical turmoil. This study highlights ESG’s critical role in enabling firms to better navigate the challenges posed by geopolitical and energy crises.
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- Sustainable Commodity Factors
- Co-authored with G. Coqueret and B. Tavin
- The Cascad Best Reproduced Paper Award at AFFI 2024
- We examine the asset pricing implications of sustainability in commodity prices. We focus on metals and agricultural commodities, for which we collect environmental footprint data, namely greenhouse gas emissions and water consumption. We first build green-minus-brown portfolios based on these footprints. Our findings yield no evidence that sustainability is priced in the cross-section of commodity returns, so that a green tilt does not change the expected performance. Second, we document strong benefits when diversifying equity and bond allocations with low-carbon commodities: a 22% welfare improvement when the commodity share is 20%. Such allocations also allow important footprint reductions at the portfolio level. These results underline the role and opportunities of sustainability in commodity markets. They also reveal the interest in extending green portfolios to commodities which, in turn, have the potential to broaden the impact of sustainable investing.
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