Measuring ESG risks in multi-asset portfolios: Decomposing VaRESG into CVaRESG

This study investigates the contribution of different asset classes to investment portfolio risk by integrating environmental, social, and governance (ESG) factors into traditional financial risk measures. We propose a new methodology for decomposing VaRESG by measuring the Component VaRESG (CVaRESG) of a multi-asset financial portfolio. A pilot empirical application's results provide evidence of the reliability of CVaRESG to define the maximum contribution of the risk accepted for securities or parts of the financial portfolio. This study contributes to the debate on how ESG factors can have quantifiable long-term financial impacts and clarifies the risk contribution of each security included in a financial portfolio.