The Influence of 2020 California Wildfire on ESG Investment in Equilibrium Based on Sustainable Investment Model
Year: 2024
Type: article
Abstract: With the change of climate and the pursuit for a balanced development between economy and society, green companies in the ESG investment have received much attention in recent years. At the same time, there are some extreme environmental events that may have influence on the market attitude towards ESG investment, thus affecting the benefits of ESG investors. In order to study the impact of 2020 California Wildfire, this research constructs the optimal portfolios considering ESG investors’ ESG preference based on the portfolio theory for both the before-fire and after-fire periods. Then the portfolio performance is quantified by using a sustainable investment model in the equilibrium market. It is found that the difference between the return of ESG portfolio and the market portfolio was larger before the fire, representing an insufficient market attention on the ESG investment. However, the gap was narrowed after the fire. Meanwhile, despite lower investor surplus, after-fire ESG investors had larger alphas than before. Therefore, the 2020 California Wildfire raised the market attention on ESG investment, which reduced the actual financial losses of ESG investors.
Author: Qianlei Chen
Institution: East China Normal University
Language: English
Subfield: Finance
Domain: Social Sciences
SDG: Climate action
Open Access status: hybrid
OpenAlex ID: W4404866723