PulseExploreJournal ClubDebatesTrendingResearchersJournals
Instagram
HomeExploreJournal ClubTrending
Synapse
⌘+K
Synapse
February 21, 2026Asia-Pacific Journal of Financial Studies0 citations

Negative ESG Premiums: Preference‐Driven or Risk‐Driven?*

View Full Paper
NLNa LiuYHYun HanFZFang Zhang

Key Points

  • The study aims to explore the existence of a negative ESG premium in China's A-share market using expected returns and cost of capital.
  • Utilized implied cost of capital as a proxy for future expected returns.
  • Analyzed high ESG stocks versus low ESG stocks within China's A-share market.
  • Examined the risk compensation as a driver for the observed negative ESG premium.
  • High ESG stocks exhibit lower expected returns compared to low ESG stocks.
  • Risk compensation primarily drives the negative ESG premium.
  • Despite the negative ESG premium, ESG investments continue to grow.

Abstract

Abstract We use the implied cost of capital as a proxy for future expected returns and investigate the existence of an environmental, social, and governance (ESG) premium in China's A‐share market. Our results show that high ESG stocks yield lower expected returns than low ESG stocks, with risk compensation being the primary driver of this negative ESG premium. Furthermore, we provide an explanation from a risk compensation mechanism of why ESG investment continues to grow despite the presence of a negative ESG premium.

Ask AI
Helpful
Bookmark
Share
View Full Paper

Cite This Study

Liu et al. (2026) studied this question.

synapsesocial.com/papers/69994bef873532290d020037https://doi.org/10.1111/ajfs.70032
Ask AI
Helpful
Bookmark
Share
View Full Paper