Evolution Path And Influencing Factors Of ESG Risk Premium In China’s A-share Market

Sustainable development is good development.Under the background of president Xi’s proposal to speed up the implementation of the 2030 sustainable development agenda,ESG,an important concept of financial assistance for sustainable development,is just the right time and has won public attention.However,compared with foreign countries,ESG investment in the domestic market has the characteristics of late start,imperfect information disclosure system and insufficient understanding of investors.In order to promote market participants’ understanding of ESG investment and accelerate the popularization of ESG investment concept in the domestic market,this paper attempts to use historical data to study three issues:whether there is an ESG risk premium in the market,how the ESG risk premium has evolved,and what factors will affect the ESG risk premium.This paper focuses on the existence,evolution path and influencing factors of ESG risk premium,and conducts empirical research around these three factors.Regarding the existence and evolution path of ESG risk premium,this paper not only verifies the hypothesis that there is ESG risk premium in A-share market by constructing ESG index and ESG factor,performing mixed OLS cross-sectional regression and FF5+ESG factor regression;We also use ESG subentry indicators and subentry factors for regression to explore the possibility of the existence of ESG subentry risk premium.The results show that there are E risk premium and S risk premium in China’s A-share market,while G risk will significantly reduce the future return rate of enterprises,which shows that investors pay full attention to the E and S risks of enterprises in the investment process,but pay relatively little attention to G risk.And this paper also draws the time series diagram of the cumulative risk premium of ESG,E and S,and deduces their evolution paths accordingly.With regard to the influencing factors of ESG risk premium,based on the existing literature findings,this paper further speculates that market fluctuation and the shareholding ratio of industry and institutional investors may affect the ESG risk premium of enterprises,and makes empirical tests by setting dummy variables and grouping regression,and finally finds that:(1)the ESG total risk premium and ESG sub-risk premium of enterprises have industry heterogeneity;(2)Based on the intervention behavior of institutional investors in enterprise decision-making,the ESG risk premium of enterprises will be significantly reduced when the shareholding ratio of institutional investors reaches a critical value,which shows that the shareholding ratio of institutional investors exceeding the threshold can reduce the ESG risk premium of enterprises;(3)In the relatively volatile period,investors pay more attention to the ESG performance of enterprises in the stable period,which makes the market have a significant ESG risk premium in the flat period,but there is no significant ESG risk premium in the volatile period,This paper focuses on the existence,evolution path and influencing factors of ESG risk premium,and conducts empirical research around these three factors.Regarding the existence and evolution path of ESG risk premium,this paper not only verifies the hypothesis that there is ESG risk premium in A-share market by constructing ESG index and ESG factor,performing mixed OLS cross-sectional regression and FF5+ESG factor regression;We also use ESG subentry indicators and subentry factors for regression to explore the possibility of the existence of ESG subentry risk premium.The results show that there are E risk premium and S risk premium in China’s A-share market,while G risk will significantly reduce the future return rate of enterprises,which shows that investors pay full attention to the E and S risks of enterprises in the investment process,but pay relatively little attention to G risk.And this paper also draws the time series diagram of the cumulative risk premium of ESG,E and S,and deduces their evolution paths accordingly.With regard to the influencing factors of ESG risk premium,based on the existing literature findings,this paper further speculates that market fluctuation and the shareholding ratio of industry and institutional investors may affect the ESG risk premium of enterprises,and makes empirical tests by setting dummy variables and grouping regression,and finally finds that:(1)the ESG total risk premium and ESG sub-risk premium of enterprises have industry heterogeneity;(2)Based on the intervention behavior of institutional investors in enterprise decision-making,the ESG risk premium of enterprises will be significantly reduced when the shareholding ratio of institutional investors reaches a critical value,which shows that the shareholding ratio of institutional investors exceeding the threshold can reduce the ESG risk premium of enterprises;(3)In the relatively volatile period,investors pay more attention to the ESG performance of enterprises in the stable period,which makes the market have a significant ESG risk premium in the flat period,but there is no significant ESG risk premium in the volatile period.Based on the above empirical findings,this paper suggests:(1)the government actively encourages institutional investors to invest in ESG to reduce the ESG risk of enterprises;(2)The government and institutional investors should pay more attention to high ESG risk industries;(3)The government actively guides investors to pay attention to ESG risks,and promotes enterprises to improve ESG performance and reduce ESG risks in the overall market through the financing incentive function of the capital market.