No More Excuses! Performance of ESG-Integrated Portfolios in Australia
Accounting & Finance, forthcoming
59 Pages Posted: 5 Mar 2018 Last revised: 5 Jun 2020
Date Written: June 5, 2020
We find compelling evidence that integrating Environment, Social and Governance (ESG) analyses into ongoing investment practices in Australia does not harm risk-adjusted returns. High-ESG-rated portfolios consistently provide superior outperformance, diversification efficiencies, and lower overall risk compared to low-ESG-rated portfolios. In contrast to low-rated portfolios, we find no evidence that high-ESG rated portfolios underperform the market. All results remain robust to alternate time periods, market cycles, seasonality effects, ratings method and the inclusion of trading costs and management fees. Overall, our findings suggest that a simple ESG-integration strategy may provide a natural hedge against the risks that arise from the evolving fiduciary responsibilities of professional investment managers relating to ESG risks.
Keywords: Australia; ESG; SRI; Portfolio management; Diversification risk; Sector analysis; Fiduciary duty
JEL Classification: G30; G11; Q56
Suggested Citation: Suggested Citation