Abstract
The objectives of this study are to analyze the presence of environmental values in ESG indexes based on the positive value relationship between energy and the environment found in existing studies and to identify the characteristics of environmental, social, and governance (ESG) investments by examining the performance of ESG investments compared to market portfolios, as well as to consider the implications of ESG investment in clean energy policy based on the results of the empirical analysis of this study. This paper contributes threefold. First, using a supply and demand-based pricing model, we propose a new model of the expected return, risk, and performance ratio of the ESG premiums defined by the log price differences between ESG indexes and a market portfolio to analyze how ESG investments perform. Second, based on the empirical findings of this study that the correlation between ESG indexes and energy prices is a decreasing function of the latter in contrast to other environmental assets, this paper suggests that ESG indexes cannot adequately demonstrate environmental values but reflect social and governance values, i.e., (E)SG, in the complementary perspective. Third, using the empirical findings of this study that the information ratio of the ESG premium tends to be positive but declines and approaches zero over time, this paper indicates that although ESG investments can be significant compared to market index investments, the significance is limited because ESG investment performance converges with market portfolio performance. In conclusion, two points should be noted about ESG investing in clean energy policy: given the dilution of environmental values in ESG investing, a clear distinction should be made between ESG investing and renewable energy investing; even if investments in renewable energy projects are treated as ESG investments, reflecting current market trends, we should be prepared for the fact that the superior investment performance due to social and governance values, rather than environmental values, will not last long.