The Cost of ESG Investing

46 Pages Posted: 6 Dec 2021

See all articles by Laura Anne Lindsey

Laura Anne Lindsey

Arizona State University (ASU) - Finance Department

Seth Pruitt

Arizona State University (ASU) - Finance Department

Christoph Schiller

Arizona State University (ASU) - W.P. Carey School of Business

Date Written: November 30, 2021

Abstract

Even against increasing interest in socially responsible investing mandates, we find that implementing ESG strategies can cost nothing. Modifying optimal portfolio weights to achieve an ESG-investing tilt negligibly affects portfolio performance across a broad range of ESG measures and thresholds. This is because those ESG measures do not provide information about future stock performance, either in relation to risk or mispricing, beyond what is provided by other observable firm characteristics. That the stock market does not reflect significant equilibrium pricing of ESG information is rationalized in a model of responsible investing wherein investors differ in which ESG-related criteria are used to weight their portfolios.

Keywords: ESG, IPCA, tangency portfolio, portfolio tilt, responsible investing, sus- tainable investing

JEL Classification: G11, G12

Suggested Citation

Lindsey, Laura Anne and Pruitt, Seth and Schiller, Christoph, The Cost of ESG Investing (November 30, 2021). Available at SSRN: https://ssrn.com/abstract=3975077 or http://dx.doi.org/10.2139/ssrn.3975077

Laura Anne Lindsey

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Seth Pruitt (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Christoph Schiller

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
753
Abstract Views
2,850
rank
47,266
PlumX Metrics