ESG Investing: From Sin Stocks to Smart Beta

Journal of Portfolio Management, Vol. 46, 2020, https://jpm.pm-research.com/content/46/3/75

Swiss Finance Institute Research Paper No. 19-16

Posted: 21 Mar 2019 Last revised: 24 May 2020

See all articles by Fabio Alessandrini

Fabio Alessandrini

University of Lausanne; Banque Cantonale Vaudoise

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute

Date Written: March 21, 2019

Abstract

Research on socially responsible investment in equity markets initially focused on sin stocks. Since then, the availability of data has been extended substantially and now covers environmental, social, and governance (ESG) criteria. Using ESG scores of firms belonging to the MSCI World universe, we measure the impact of score-based exclusion on both passive investment and smart beta strategies. We find that exclusion leads to improved scores of otherwise standard portfolios without deterioration of their risk-adjusted performance. Smart beta strategies exhibit a similar pattern, often in a more pronounced way. Moreover, our results demonstrate that exclusion also implies regional and sectoral tilts as well as (possibly undesirable) risk exposures of the portfolios.

Suggested Citation

Alessandrini, Fabio and Jondeau, Eric, ESG Investing: From Sin Stocks to Smart Beta (March 21, 2019). Journal of Portfolio Management, Vol. 46, 2020, https://jpm.pm-research.com/content/46/3/75; Swiss Finance Institute Research Paper No. 19-16. Available at SSRN: https://ssrn.com/abstract=3357395 or http://dx.doi.org/10.2139/ssrn.3357395

Fabio Alessandrini

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Banque Cantonale Vaudoise ( email )

Place St-François 14
Lausanne
United States

Eric Jondeau (Contact Author)

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://www.hec.unil.ch/ejondeau/

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