This research is courtesy of Wesley R. Gray, PhD, https://alphaarchitect.com/
In “ESG Performance Breakdown by E, S, and G,” Tommi Johnsen, PhD, looks at:
- Individual E, S, and G pillar scores’ risk/return ratios
- The main issues
If you want to learn more about the article, the writers have created a video and a blog about it: here
The Main Issues
- Overall, average correlations were relatively low within the three pillars
- Across the 11 main issues examined, the firm-specific/idiosyncratic channel generated the most important results
- Overall, the findings provide food for thought when it comes to incorporating ESG causes, pillars, and key issues into stock selection and/or portfolio creation … ESG ratings and research is messy
ESG investors should not plan to make a profit and should think about what factor exposures might be lurking underneath the surface.
The Most Important Finding
The G pillar overshadowed the other two for the majority of the time span observed. The combined ESG ranking, on the other hand, was significantly higher. The dominance of the G is not shocking.