Description:
ESG investing strategies have been gaining popularity in recent years. This research studies the relationships between the ESG factor and a carbon factor and well-known equity risk factors. We find that the systematic components of recently proposed carbon and ESG risk factors are linear combinations of well-known risk factors. The ESG factor has a positive exposure to the safety factor (a subcomponent of the quality factor) and positive exposure to large firms and high beta firms. The carbon factor has positive exposure to the market and safety factors and negative loadings on the size and profitability factors