ESG Issues and Performance

This research is courtesy of Wesley R. Gray, PhD, https://alphaarchitect.com/

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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

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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

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Bottom Line

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.