An ESG Ratings Free Assessment of Socially Responsible Investment Strategies

40 Pages Posted: 6 Jan 2021

See all articles by Franco Fiordelisi

Franco Fiordelisi

University of Essex - Essex Business School

Giuseppe Galloppo

Università degli studi della Tuscia

Gabriele Lattanzio

Monash University

Viktoriia Paimanova

University of Rome Tor Vergata

Date Written: December 6, 2020

Abstract

Environmental, Social, and Governance (ESG) ratings feature statistical and economic problems undermining their reliability as valid proxies for corporates’ social performance. To overcome this ratings providers specific bias, we focus on global sample of ESG-oriented Exchange Traded Funds (ETFs). Studying passive and pre-committed strategies provide us with several economic and econometric advantages, allowing us to document that Socially Responsible Investments (SRI)-oriented strategies generate significantly higher average stock market returns and liquidity. However, the identified overperformance is concentrated in months of extreme climate activity, while the effect reverses during financial crisis. These findings confirm that investors react to non-pecuniary shocks by increasing the weights assigned to SRI investments in their portfolio, but their preference shifts back towards traditional strategies during economic downturns.

Keywords: Sustainable Investments, Climate Change, Natural Disasters, ETF

JEL Classification: G11, G12, G18

Suggested Citation

Fiordelisi, Franco and Galloppo, Giuseppe and Lattanzio, Gabriele and Paimanova, Viktoriia, An ESG Ratings Free Assessment of Socially Responsible Investment Strategies (December 6, 2020). Available at SSRN: https://ssrn.com/abstract=3743802 or http://dx.doi.org/10.2139/ssrn.3743802

Franco Fiordelisi

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Giuseppe Galloppo

Università degli studi della Tuscia ( email )

Viterbo

Gabriele Lattanzio (Contact Author)

Monash University ( email )

Melbourne
Australia

HOME PAGE: http://www.gabrielelattanzio.com

Viktoriia Paimanova

University of Rome Tor Vergata ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

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