Investigating the Relationship Between Environmental, Social, and Governance Factors and the Capital Asset Pricing Model

Abstract

This study delves into the intricate relationship between the Capital Asset Pricing Model (CAPM) and Environmental, Social, and Governance (ESG) factors in the investment landscape. Through an extensive review of existing literature and comparative analyses, the paper uncovers the historical development of CAPM, the rise of ESG considerations, and their convergence in modern financial theory. The research aims to shed light on the ongoing debates surrounding integrating ESG factors into the CAPM framework, revealing both supportive and critical viewpoints. Through a critical evaluation of empirical studies, the paper identifies gaps in the current body of knowledge, emphasizing the need for further research to understand the interplay between ESG factors and CAPM. The study concludes that while ESG considerations have increasingly influenced investment decisions, their precise relationship with traditional financial models, such as CAPM, remains an area ripe for exploration.