Responsible investing: upside potential and downside protection?

Gao, Y., Hoepner, A. G. F., Prokopczuk, M., Rouxelin, F. and Wuersig, C. (2025) Responsible investing: upside potential and downside protection? International Review of Financial Analysis, 97. 103754. ISSN 1057-5219 doi: 10.1016/j.irfa.2024.103754

Abstract/Summary

Conventional risk proxies are measured assuming that investors have symmetric risk preferences, with upside and downside deviations from the expectation being equivalently undesirable. Responsible investors, however, have dual financial aims of enhancing upside potential while reducing downside risk by actively incorporating environmental, social, and governance (ESG) aspects into the investment process. We utilize a non-symmetric option pricing research design to test whether responsible investors could live up to their ambitions. We find that those who are simply Principles for Responsible Investment (PRI) members do not deliver the desirable asymmetric performance, while financial firms with highly rated responsible investment processes can actually achieve both aims for their own shareholders: enhancing upside potentials and protecting themselves from downside risks.

Item Type	Article
URI	https://centaur.reading.ac.uk/id/eprint/130855
Identification Number/DOI	10.1016/j.irfa.2024.103754
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
Download/View statistics	View download statistics for this item