Scientific Beta

Benefits and Pensions Monitor: "While many of the ESG (environment, social, and governance) strategies have positive returns, adjusting these returns for risk shrinks ‘alpha’ or excess risk-adjusted return to zero, says research by Scientific Beta. ‘Honey, I Shrunk the ESG Alpha: Risk-Adjusting ESG Portfolio Returns’ found that returns are inflated when investor attention to ESG rises. The findings do not question that ESG strategies can offer substantial value to investors. Instead, they suggest that investors who look for added value through outperformance are looking in the wrong place."

Benefits and Pensions Monitor 11/05/2021

"(...) While many of the ESG (environment, social, and governance) strategies have positive returns, adjusting these returns for risk shrinks ‘alpha’ or excess risk-adjusted return to zero, says research by Scientific Beta. ‘Honey, I Shrunk the ESG Alpha: Risk-Adjusting ESG Portfolio Returns’ found that returns are inflated when investor attention to ESG rises. The findings do not question that ESG strategies can offer substantial value to investors. Instead, they suggest that investors who look for added value through outperformance are looking in the wrong place. It may be that sector biases and exposures to equity style factors capture the returns of ESG strategies. Dr. Noël Amenc, CEO of Scientific Beta, says, “Omitting necessary risk adjustments and selecting a recent period with upward attention shifts enables outperformance to be documented where in reality there is none. Investors should ask how ESG strategies can help them to achieve objectives other than alpha, such as aligning investments with their values and norms, making a positive social impact, and reducing climate or litigation risk.” (...)"