Social Premiums

40 Pages Posted: 30 Apr 2024

See all articles by Hoa Briscoe-Tran

Hoa Briscoe-Tran

University of Alberta - School of Business

Iwan Meier

HEC Montreal - Department of Finance

Reem Elabd

HEC Montreal - Department of Finance

Valeri Sokolovski

University of Alberta - School of Business

Date Written: April 18, 2024

Abstract

While there is extensive research on governance (G) and a growing focus on environmental (E) issues, the social dimension (S) of ESG investing is still underscrutinized. Using the MSCI social scores, we find that the two main components of a firm's social score, human capital and product safety, command statistically significant (yet opposing) return premiums in the cross-section of US stocks. Specifically, stocks with a high human capital score earn higher returns, and stocks with a high product safety score earn lower returns. Consequently, the aggregate social score commands no premium as the opposing effects of its components neutralize each other. Our findings challenge the common ESG investing approach of amalgamating factors without considering their distinct, potentially contradictory, risk and return implications.

Keywords: ESG, MSCI, return predictability, risk premiums, S, social scores

JEL Classification: G11, G12, G14, M14

Suggested Citation

Briscoe-Tran, Hoa and Meier, Iwan and Elabd, Reem and Sokolovski, Valeri, Social Premiums (April 18, 2024). Available at SSRN: https://ssrn.com/abstract=4799612 or http://dx.doi.org/10.2139/ssrn.4799612

Hoa Briscoe-Tran

University of Alberta - School of Business ( email )

2-43 Business Building
Edmonton, Alberta T6G 2C7
Canada

Iwan Meier

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7 H2J 2K9
Canada
(514) 340-3198 (Phone)

Reem Elabd

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Valeri Sokolovski (Contact Author)

University of Alberta - School of Business ( email )

2-43 Business Building
Edmonton, Alberta T6G 2C7
Canada

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