Resumo

ESG relates to the integration of environmental, social, and governance issues by companies and investors into their business models (Gillan et al., 2021). Systematic risk is related to the entire market, occurring through general market movements, affecting the total price of the securities that are made available in the financial market (Salehi et al., 2020). Environmental innovation is embedded in the business strategy, impacting production processes and products (García?Sánchez, Gallego?Álvarez, et al., 2021).

This paper seeks to answer three research questions with the aim of filling a gap in the literature and providing theoretical and empirical evidence to contribute to the ESG issues and systematic risk literature. The research questions are as follows - (1) Is there any influence of ESG on firms' systematic risk? (2) Does environmental innovation moderate ESG-systematic risk nexus? and (3) Does analyst coverage moderate the association between ESG and systematic risk?

Theoretically, the effect of ESG issues on systematic risk can be explained using stakeholder theory and the resource-based view. Stakeholder is a group or individual that affects or can be affected by the organization and stakeholder theory is a set of propositions that suggests that companies have obligations to their stakeholders (Freeman, 2015). According to the resource-based view, company resources can only be a source of competitive advantage when they are valuable, rare, imperfectly imitable and substitutability (Barney, 1991).

To test the hypotheses, we use a sample consisting of 6371 firms-year observation of 2079 firms from Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates in the period 2015-2020. We measure systematic risk by the CAPM beta and ESG by the ESG score provided by the Refinitiv database. We use quantile regression at the 0.10, 0.25, 0.50, 0.75 and 0.90 percentiles in the study.

The results show that ESG negatively influences firm systematic risk at all quartiles, supporting hypothesis 1. The results also indicate that environmental innovation and analyst coverage do not moderate the ESG-risk nexus, rejecting hypotheses 2 and 3. Finally, the results suggest that firm size and leverage positively influence systematic risk and that profitability negatively influences systematic risk.

We consider ESG a valuable strategic tool that companies can use to reduce their systematic risk, so managers could invest more in ESG activities and policy makers could support initiatives to increase companies' ESG performance. Moreover, the empirical results indicate a path for firms to decrease their systematic risk: investment in ESG practices. The insignificant results suggest that in companies with greater environmental innovation, ESG activities do not influence the systematic risk.

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