We examine the cross-sectional predictive ability of the Refinitiv Environmental, Social and Governance (ESG) score for returns in the foreign exchange market, using ESG scores aggregated at the national level, and find that ESG is a strong negative predictor of currency returns. Intuitively, investors require a premium for financing low-ESG countries while high-ESG countries offer lower returns and provide a hedge in the bad state of the world. We show that ESG is priced in the cross-section of currency returns. We also consider the different components of ESG and show that its predictability is driven by the environmental pillar of the ESG ratings. Our results have strong implications for portfolios of individual investors and fund managers and offer new insights for policymakers in the foreign exchange market. The profitability of the ESG currency strategy is not driven by the carry trade and is robust to transaction costs.

我们使用在国家层面汇总的 ESG 分数检查了 Refinitiv 环境、社会和治理 (ESG) 分数对外汇市场回报的横截面预测能力，并发现 ESG 是货币回报的强大负面预测因子。直觉上，投资者要求为低 ESG 国家融资的溢价，而高 ESG 国家提供较低的回报，并在世界糟糕的情况下提供对冲。我们表明 ESG 以货币回报的横截面定价。我们还考虑了 ESG 的不同组成部分，并表明其可预测性是由 ESG 评级的环境支柱驱动的。我们的结果对个人投资者和基金经理的投资组合具有重要意义，并为外汇市场的决策者提供了新的见解。