Tracking risk transitions: ESG scores and market beta dynamics
Abstract
This paper investigates the relationship between sustainability and market risk using a Markov-switching CAPM with endogenous transition probabilities. Using a panel of 2881 U.S.-listed firms over the period 2005–2024, we show that improvements in ESG scores increase the likelihood of transitioning to, or remaining in, a low-beta regime, and in some cases even a negative-beta regime. We further document that, during periods of pronounced market drawdowns, the probability of being in a low-beta state is higher for firms with stronger ESG performance. Overall, our findings support a defensive, and at times safe-haven, role for high-ESG assets.
Fields of Study & Subjects
Financial Risk and Volatility Modeling
Banking stability
regulation
efficiency
Sustainable Finance and Green Bonds
Publication details
- Journal / source
- Finance research letters
- Publisher
- Elsevier BV
- Volume
- 103
- Pages
- 110183–110183
- Publication date
- 14 May 2026
- Language
- EN