A Comprehensive Literature Review on ESG Strategy Investing

ESG (Environmental, Social, and Governance) investment has been building up as a values based special purpose strategy to a theoretically sound and empirically valid constituent of the contemporary portfolios. The current research summary provides a conceptual description of the observed empirical steps through which ESG characteristic can influence the prices of assets, the communications of risk and capital decision. In line with nonpecuniary utility, information asymmetry, and stakeholder theory models, we examine empirical evidence concerning the presence or absence of pricing of ESG attributes as risk factors, safeguarding of downside risk, or, merely,, simply industry and firm-specific factors. We research in terms of techniques methodological instruments of econometric identification panel regressions, quasi-natural experiments, and factor-model extensions and novel methods of forecasting ESG-adjusted returns with machine-learning and identifying non-linear relationships. The literature has shown that the ESG integration is always associated with reduced volatility and tail-risk exposure but the return premia is sporadic and is contingent on the design of the measure. The review also displays the increased importance of the ESG factors in the decision in allocating venture capital particularly venture capital in capital-intensive green technology. The typical issues include the data fragmentation, the difference in scores, the absence of inference of causality and the complicatedness of the dynamics modeling of the formation of ESG factors. Our research areas of interest will include standardized ESG data construction, and introduction of ESG into multi-factor models of asset-pricing, and construction of ESG valuation of more diversity of assets other than household and alternative assets.