ESG-Ratings and Returns

Abstract

We nd that value-weighted portfolios long US stocks from compa- nies with low Environmental, Social and Governance (ESG)-ratings and short stocks with high ESG-ratings have returned annualized 5-factor alphas between 6.9% and 10.8% in the period of 2010 and 2018 depending on the choice of breakpoint. Through analysing holdings of institutional investors, we nd that the di erence in performance cannot be attributed to behavioral changes such as negative screening of low-rated ESG stocks or impact investing in high-rated ESG stocks.