{"title":"Diversified ESG Evaluation by Rating Agencies and Net Carbon Tax to Regain Optimal Portfolio Allocation","authors":"Naoyuki Yoshino, Tomonori Yuyama, Farhad Taghizadeh-Hesary","doi":"10.1162/asep_a_00871","DOIUrl":null,"url":null,"abstract":"Abstract Environmental, Society, and Governance (ESG) investments have become increasingly popular in recent years, and, at the same time, many rating agencies provide ESG scores for each company. This means that the ESG investment model may have moved from the traditional two-factor model of risk-return to a three-factor model adding an ESG component to it. This paper highlights the potential for distortion of asset allocation through the shift from traditional risk-return considerations to ESG score considerations. This is equally true for green bonds, resulting in the potential for asset allocation to be distorted by green bond criteria. Furthermore, we show that imposing a net carbon tax on greenhouse gas (GHG) emissions is a measure to correct this distortion in asset allocation and make asset allocation more risk-return based, in addressing global environmental issues.","PeriodicalId":52020,"journal":{"name":"Asian Economic Papers","volume":null,"pages":null},"PeriodicalIF":5.3000,"publicationDate":"2023-10-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Asian Economic Papers","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1162/asep_a_00871","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
Abstract Environmental, Society, and Governance (ESG) investments have become increasingly popular in recent years, and, at the same time, many rating agencies provide ESG scores for each company. This means that the ESG investment model may have moved from the traditional two-factor model of risk-return to a three-factor model adding an ESG component to it. This paper highlights the potential for distortion of asset allocation through the shift from traditional risk-return considerations to ESG score considerations. This is equally true for green bonds, resulting in the potential for asset allocation to be distorted by green bond criteria. Furthermore, we show that imposing a net carbon tax on greenhouse gas (GHG) emissions is a measure to correct this distortion in asset allocation and make asset allocation more risk-return based, in addressing global environmental issues.
期刊介绍：
The journal Asian Economic Papers (AEP) is supported by several prominent institutions, including the Center for Sustainable Development at Columbia University in the United States. This shows that there is a strong emphasis on sustainable development within the journal's scope. Additionally, the Korea Institute for International Economic Policy in South Korea, the UN Sustainable Development Solutions Network (SDSN) in Malaysia, and the Economic Research Institute for ASEAN and East Asia in Indonesia also sponsor AEP. The articles published in AEP focus on conducting thorough and rigorous analyses of significant economic issues pertaining to specific Asian economies or the broader Asian region. The aim is to gain a deeper understanding of these issues and provide innovative solutions. By offering creative solutions to economic challenges, AEP contributes to the discourse and policymaking that impact the Asian economies and region as a whole.
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