Beyond a Morality Tale: Reassessing ESG Investing

Abstract

We examined the benefit of incorporating ESG factors over a more recent period to acknowledge the ongoing investment trend toward ESG. A review of academic literature suggests lack of consensus on the benefit of incorporating ESG factors. We find no evidence that suggests incorporating ESG criteria results in a performance headwind or subordinate return. Furthermore, we find strong evidence of idiosyncratic risk reduction as one moves from firms that are least ESG compliant toward firms that are most ESG compliant. Finally, we conclude that the source of ESG rating can alter the performance of ESG factors.