Uncovering the Puzzle of ESG Score Adjustments: An Analysis of Systemic Impacts and Momentum Dynamics

Abstract

In this research paper, we explore the presence of momentum in ESG scores with the possibilities of utilizing the potential momentum to generate alpha. Three drivers - company, industry, and country - are analyzed through regression analysis using MSCI ESG data to develop a systematic, investment, and predictive model. Our findings show that ESG score changes exhibit a short-term inverse relationship with preceding periods, but individual momentum becomes apparent over longer periods. We also identify company, industry, and country factors as drivers of momentum in ESG scores. In conclusion, our research indicates weak momentum tendencies in ESG scores