Quant’s Look on ESG Investing Strategies

Abstract

This paper reviews academic research about ESG factors and socially responsible investing. Probably the main issue with ESG investing is caused by the ESG data. ESG scores vary across various datasets, which makes all analyses complicated for academics, practitioners, and companies as well. We examine the literature to find the correlation between datasets and the reasons for such dispersion among scores. Secondly, we are interested in applying strategies based on the ESG scores. We conclude that ESG scores can be successfully used in practice, utilized in negative screening, level, or momentum strategies. However, academic research must be examined with attention to the ESG dataset, approach for the strategy construction, and time period. Otherwise, there may be some dangerous generalizations.

Keywords: ESG, socially responsible investing, trading strategy, negative screening, positive screening, momentum