ESG-Screening and Factor-Risk-Adjusted Performance: The Concentration Level of Screening Does Matter

Jin, I. 2020. “ESG-screening and factor-risk-adjusted performance: the concentration level of screening does matter,” Journal of Sustainable Finance & Investment, DOI:10.1080/20430795.2020.1837501

42 Pages Posted: 5 Jan 2021

See all articles by Ick Jin

Ick Jin

National Assembly Budget Office

Date Written: October 17, 2020

Abstract

Constructing ESG-screened portfolios aims to reduce the aggregate ESG-risk at the portfolio level by excluding low ESG-score constituents from the selection universe. But ESG-screening imposes limits on potential diversification as well as alters risk exposures to systematic factors. To investigate ESG-screening’s impact on the factor-risk-adjusted performance of portfolios, we construct ESG-screened portfolios consisting of US equity mutual funds according to their returns-based ESG-scores. The result of performance contribution analysis for the sample period from 1999 to 2018 suggests that investors need to treat the concentration level of ESG-screening as a search parameter to balance the costs and benefits of ESG-screening.

Keywords: ESG; ESG Screening; ESG Score; Concentration Level of Screening; Factor-Risk-Adjusted Performance; Specific Risk; Systematic Risk; Performance Contribution; Responsible Investing; Downside Protection

JEL Classification: C15, G11, G12, G13, G22, G33

Suggested Citation

Jin, Ick, ESG-Screening and Factor-Risk-Adjusted Performance: The Concentration Level of Screening Does Matter (October 17, 2020). Jin, I. 2020. “ESG-screening and factor-risk-adjusted performance: the concentration level of screening does matter,” Journal of Sustainable Finance & Investment, DOI:10.1080/20430795.2020.1837501, Available at SSRN: https://ssrn.com/abstract=3722485 or http://dx.doi.org/10.2139/ssrn.3722485

Ick Jin (Contact Author)

National Assembly Budget Office ( email )

1 Uisadang-daero Yeongdeungpo-gu
Seoul
Korea, Republic of (South Korea)
821088830916 (Phone)

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