Is ESG an Equity Factor or Just an Investment Guide?

11 Pages Posted: 24 Jul 2018

See all articles by André Breedt

André Breedt

Capital Fund Management

Stefano Ciliberti

Capital Fund Management

Stanislao Gualdi

Capital Fund Management

Philip Seager

Capital Fund Management

Date Written: July 3, 2018

Abstract

Environmental, Social and Governance (ESG) information demands attention within the asset management industry since it has become widely accepted that making an allowance for ESG criteria within an equity portfolio enhances returns. We test this proposition by incorporating ESG criteria into a worldwide market neutral portfolio using an 'off-the-shelf' third party database of individual securities' ratings. Our results show that incorporating ESG information into a worldwide equity market neutral portfolio yields no additional return, as any benefits from tilting towards a better rated ESG portfolio is already wholly captured by other well-known equity factors. Doing so, however, does not hurt returns. We conclude that ESG should not be considered as a unique equity factor.

Keywords: ESG ratings, Quantitative Asset Management, Equity market neutral, Risk premia

Suggested Citation

Breedt, André and Ciliberti, Stefano and Gualdi, Stanislao and Seager, Philip, Is ESG an Equity Factor or Just an Investment Guide? (July 3, 2018). Available at SSRN: https://ssrn.com/abstract=3207372 or http://dx.doi.org/10.2139/ssrn.3207372

André Breedt (Contact Author)

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Stefano Ciliberti

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Stanislao Gualdi

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Philip Seager

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

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