Responsible investments reduce market risks

Abstract

Responsible investments are considered one of the driving factors of revenues growth enhancing risk-adjusted returns. This paper investigates the effects of responsible investments on the volatility of European stock returns. First, we exploit an expectation-maximization (E-M) algorithm to cluster the companies into two groups according to the Environmental score (E), used as a proxy for responsible investments. Second, we build one global minimum variance (GMV) portfolio within each group and estimate its volatility using ARCH-type models. Finally, we forecast well-known risk measures such as the value-at-risk (VaR) and the expected tail loss (ETL) to assess market risks for investing green. Responsible portfolios composed of stocks with high E score outperform their Low E counterparts and are shown to be safer choices to mitigate risks, especially during periods of market distress. The results are remarkable for many sectors.

Improving Venture Investment Tools: Neutralizing Financial risks and Achieving Sustainable Development Goals

“…The existing literature provides a theoretical answer to this question, but this answer has limited practical use. In the works (Kang, 2020;Morelli and D'Ecclesia, 2021;, the criterion of the classi cation of venture capital investments from the standpoint of their consequences for the SDGs is the character of venture capital investments. According to this criterion, it is possible to distinguish responsible (sustainable) investments, which priority is the support of the SDGs, which ensures positive consequences for sustainable development.…”