Green Shields: The Role of ESG in Uncertain Times

Fatih Kansoy & Dominykas Stasiulaitis

Department of Economics, University of Oxford · 2025

Target Protection

+1.6 bps

Shield from rate hikes

FG Vulnerability

−2.6 bps

Forward guidance sensitivity

Paris Reversal

186 bps

Structural break Dec 2015

Sample

160

FOMC announcements

Key Finding

High-ESG firms gain 1.6 bps of protection from contractionary target surprises, yet suffer 2.6 bps greater sensitivity to forward guidance shocks. The Paris Agreement inverted these relationships — a 186 bps reversal.

Mechanism

Clientele Effect (Target)

ESG investors' lower demand elasticity to current rate changes creates a +1.6 bps shield during contractionary surprises.

Duration Effect (Forward Guidance)

ESG investors' longer investment horizons amplify sensitivity to expected future rate paths: −2.6 bps vulnerability.

Paris Agreement Break

Before (2005–15)

  • −1.2 bps additional loss
  • Unhedged duration risk
  • Shallow green bond market

After (2016–25)

  • +0.74 bps protection
  • Green bonds enable hedging
  • Higher climate awareness

Methodology

Identification

High-frequency identification around 160 FOMC announcements. Shocks decomposed into target and path components using federal funds futures.

Sample

S&P 500 firms matched with MSCI ESG scores, 2005–2025. Within-industry analysis with firm & time fixed effects.

Theory

Two-period model with heterogeneous investors. Non-pecuniary utility creates differential demand elasticities that match all empirical patterns.

Cite

@article{kansoy2025green,
  title   = {Green Shields: The Role of ESG in Uncertain Times},
  author  = {Kansoy, Fatih and Stasiulaitis, Dominykas},
  journal = {Discussion Paper Series, University of Oxford},
  year    = {2025}
}