Scientific Beta

Consumers' Research: "Over the last decade, people have become increasingly concerned with the environment and corporate America’s impact on it. This development, along with increased concern for social issues and labor rights, has led many investors to integrate environmental, social, and governance (ESG) criteria into their equity portfolios. In their paper “‘Honey, I Shrunk the ESG Alpha’: Risk-Adjusting ESG Portfolio Returns,” authors Giovanni Bruno, Mikheil Esakia, and Felix Goltz examine the performance of ESG strategies and the value they can offer to investors."

Consumers Research 17/05/2021

"(...) Over the last decade, people have become increasingly concerned with the environment and corporate America’s impact on it. This development, along with increased concern for social issues and labor rights, has led many investors to integrate environmental, social, and governance (ESG) criteria into their equity portfolios. In their paper “‘Honey, I Shrunk the ESG Alpha’: Risk-Adjusting ESG Portfolio Returns,” authors Giovanni Bruno, Mikheil Esakia, and Felix Goltz examine the performance of ESG strategies and the value they can offer to investors. (...) In conclusion, the authors reiterated that while many ESG strategies have positive returns, adjusting these returns for risk shrinks alpha to zero. The authors caution that their findings are specific to their data set, but they believe in the validity of their conclusion that there is no positive alpha for ESG strategies. These findings have potentially important implications. Their analysis provides an example of how one can document outperformance where there is none. Furthermore, investors need to look beyond alpha if they want to use ESG as an investment strategy if there is no evidence of outperformance from ESG when adjusted. (...)"