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Papers on “ESG investing financial performance returns”

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1. Aggregate Confusion: The Divergence of ESG Ratings

   Florian Berg, Julian F Kölbel, Roberto Rigobón · 2022 · European Finance Review · 3,210 cites

   Abstract This paper investigates the divergence of environmental, social, and governance (ESG) ratings based on data from six prominent ESG rating agencies: Kinder, Lydenberg, and Domini (KLD), Sustainalytics, Moody’s ESG (Vigeo-Eiris), S&P Global (RobecoSAM), Refinitiv (Asset4), and MSCI. We document the rating divergence and map the different methodologies onto a common taxonomy of categories. Using this taxonomy, we decompose the divergence into contributions of scope, measurement, and weight. Measurement contributes 56% of the divergence, scope 38%, and weight 6%. Further analyzing the reasons for measurement divergence, we detect a rater effect where a rater’s overall view of a firm inf

2. The Importance of Climate Risks for Institutional Investors

   Philipp Krueger, Zacharias Sautner, Laura T. Starks · 2019 · Review of Financial Studies · 3,009 cites

   Abstract According to our survey about climate risk perceptions, institutional investors believe climate risks have financial implications for their portfolio firms and that these risks, particularly regulatory risks, already have begun to materialize. Many of the investors, especially the long-term, larger, and ESG-oriented ones, consider risk management and engagement, rather than divestment, to be the better approach for addressing climate risks. Although surveyed investors believe that some equity valuations do not fully reflect climate risks, their perceived overvaluations are not large.

3. Responsible investing: The ESG-efficient frontier

   Lasse Heje Pedersen, Shaun Fitzgibbons, Łukasz Pomorski · 2020 · Journal of Financial Economics · 1,982 cites

   We propose a theory in which each stock's environmental, social, and governance (ESG) score plays two roles: (1) providing information about firm fundamentals and (2) affecting investor preferences. The solution to the investor's portfolio problem is characterized by an ESG-efficient frontier, showing the highest attainable Sharpe ratio for each ESG level. The corresponding portfolios satisfy four-fund separation. Equilibrium asset prices are determined by an ESG-adjusted capital asset pricing model, showing when ESG raises or lowers the required return. Combining several large data sets, we compute the empirical ESG-efficient frontier and show the costs and benefits of responsible investing

4. Environmental, Social and Governance (ESG) Scores and Financial Performance of Multilatinas: Moderating Effects of Geographic International Diversification and Financial Slack

   Eduardo Alexander Duque Grisales, Javier Aguilera‐Caracuel · 2019 · Journal of Business Ethics · 1,092 cites

5. Sustainable development, ESG performance and company market value: Mediating effect of financial performance

   Guangyou Zhou, Lian Liu, Sumei Luo · 2022 · Business Strategy and the Environment · 902 cites

   Abstract At present, more and more attention is paid to the sustainable development of enterprises. In particular, in the context of frequent financial crises and COVID‐19 pandemic, how the performance of listed companies' environmental, social, and governance (ESG) affects the company's market value has attracted widespread attention. Different from existing studies, this paper takes financial performance as a mediating variable and constructs linear regression model and mediating effect model based on analyzing the relationship between ESG performance, financial performance, and company market value and their influencing mechanism. The ESG rating data of Chinese listed companies newly deve

6. Inside the ESG ratings: (Dis)agreement and performance

   Monica Billio, Michele Costola, Iva Hristova, et al. · 2021 · Corporate Social Responsibility and Environmental Management · 602 cites

   Abstract We analyze the ESG rating criteria used by prominent agencies and show that there is a lack of a commonality in the definition of ESG (i) characteristics, (ii) attributes and (iii) standards in defining E, S and G components. We provide evidence that heterogeneity in rating criteria can lead agencies to have opposite opinions on the same evaluated companies and that agreement across those providers is substantially low. Those alternative definitions of ESG also affect sustainable investments leading to the identification of different investment universes and consequently to the creation of different benchmarks. This implies that in the asset management industry it is extremely diffi

7. The wages of social responsibility — where are they? A critical review of ESG investing

   Gerhard Halbritter, Gregor Dorfleitner · 2015 · Review of Financial Economics · 592 cites

   Abstract This paper contributes both to investigating the link between the corporate social and financial performance based on environmental, social and corporate governance (ESG) ratings and to reviewing the existing empirical evidence pertaining to this relationship. The sample used includes ESG data of ASSET4, Bloomberg and KLD for the U.S. market from 1991 to 2012. The econometrical framework applies an ESG portfolio approach using the Carhart (1997) four‐factor model as well as cross‐sectional Fama and MacBeth (1973) regressions. Previous empirical research indicates a relationship between ESG ratings and returns. As against this, the ESG portfolios do not state a significant return dif

8. The end of ESG

   Alex Edmans · 2022 · Financial Management · 532 cites

   Abstract ESG is both extremely important and nothing special. It's extremely important because it's critical to long‐term value, and so any academic or practitioner should take it seriously, not just those with “ESG” in their research interests or job title. Thus, ESG doesn't need a specialized term, as that implies it's niche—considering long‐term factors isn't ESG investing; it's investing. It's nothing special since it's no better or worse than other intangible assets that create long‐term financial and social returns, such as management quality, corporate culture, and innovative capability. Companies shouldn't be praised more for improving their ESG performance than these other intangibl