Factor Exposures and Diversi Cation: Are Sustainably-Screened Portfolios Any Different?

Gougler, Arnaud; Utz, Sebastian

Factor Exposures and Diversi Cation: Are Sustainably-Screened Portfolios Any Different?

Gougler, A., Utz, S. FactorExposures and Diversification: Are Sustainably Screened Portfolios Any Different? Financial Markets and Portfolio Management (2020). https://doi.org/10.1007/s11408-020-00354-4

41 Pages Posted: 4 Sep 2020

See all articles by Arnaud Gougler

Arnaud Gougler

affiliation not provided to SSRN

Sebastian Utz

University Augsburg

Date Written: July 26, 2020

Abstract

We analyze the performance, risk, and diversification characteristics of global screened and best-in-class equity portfolios constructed according to Inrate's sustainability ratings. The financial performance of sustainably high-rated portfolios is similar to the risk-adjusted market performance in terms of abnormal returns of a five-factor market model. In contrast, low-rated portfolios exhibit negative abnormal returns. Firms with high sustainability ratings show lower idiosyncratic risk, and higher exposure towards the high-minus-low and the conservative-minus-aggressive factor.

Keywords: Sustainable portfolios, Portfolio diversification, ESG Scores, Screening approaches, Idiosyncratic risk

JEL Classification: G11, Q56

Suggested Citation: Suggested Citation

Gougler, Arnaud and Utz, Sebastian, Factor Exposures and Diversi Cation: Are Sustainably-Screened Portfolios Any Different? (July 26, 2020). Gougler, A., Utz, S. FactorExposures and Diversification: Are Sustainably Screened Portfolios Any Different? Financial Markets and Portfolio Management (2020). https://doi.org/10.1007/s11408-020-00354-4, Available at SSRN: https://ssrn.com/abstract=3660986