Passive ESG Portfolio Management - The Benchmark Strategy for Socially Responsible Investors

44 Pages Posted: 17 Jun 2019

See all articles by Julian Amon

Julian Amon

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics

Margarethe Rammerstorfer

Vienna University of Economics and Business - Department of Corporate Finance

Karl Weinmayer

Modul University Vienna - Department of International Management; Vienna University of Economics and Business - Institute for Finance, Banking and Insurance

Date Written: June 7, 2019

Abstract

In this article, we analyze the possibility to do well, while doing good from a passive portfolio management strategy. In this analysis, we distinguish the regions Europe and the US and refer to the stock price data of composites from the most important indices in these regions. Based on these, we design portfolios that mimic a typical index, and compare their performance in terms of risk, ESG and return. All strategies proposed are passive and thus, not affected by management skills or fees. We show, that there are significant differences across the regions which can only partly be explained by the Fama French factors. We find that there is no significant difference between an ESG based strategy and the naive one in terms of returns or sharpe ratios, whereas a clear outperformance in the ESG value is evident. From this, it can be concluded, that socially responsible investors are willing to pay for the impact of the portfolio, as in opposite to the naive strategy transaction costs have to be paid. Comparing the ESG based strategy to the value weighted strategy that is used for most indices, we observe no significant ESG difference but a significant superior performance of the ESG based portfolio, arguing in favor of the ESG strategy being preferable to all investors - not only the social ones.

Keywords: sustainable nance, portfolio management, fund management, social - nance, asset management, asset pricing, factor analysis, socially responsible investing

JEL Classification: G11, G12, G15

Suggested Citation

Amon, Julian and Rammerstorfer, Margarethe and Weinmayer, Karl, Passive ESG Portfolio Management - The Benchmark Strategy for Socially Responsible Investors (June 7, 2019). Available at SSRN: https://ssrn.com/abstract=3400628 or http://dx.doi.org/10.2139/ssrn.3400628

Julian Amon

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Margarethe Rammerstorfer

Vienna University of Economics and Business - Department of Corporate Finance ( email )

Welthandelsplatz 1
1020 Vienna
Austria

Karl Weinmayer (Contact Author)

Modul University Vienna - Department of International Management ( email )

Am Kahlenberg 1
Vienna, 1190
Austria
+43-1-3203555-653 (Phone)

Vienna University of Economics and Business - Institute for Finance, Banking and Insurance ( email )

Welthandelsplatz 1
Building D4, 4th floor
Vienna, 1020
Austria

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