Scientific Beta

Investor Strategy News: "The supposed benchmark-beating powers of ESG have more to do with investors' exposure to well-known factors rather than any sustainable secret sauce, according to quant house Scientific Beta. Scientific Beta senior investment specialist Mike Aked has some bad news for those expecting outperformance just for being ‘good’. Reported links between high environmental, social and governance (ESG) scores and above-market returns have dissolved on the acid test of careful statistical analysis. "

Investor Strategy News 23/08/2023

"(...) The supposed benchmark-beating powers of ESG have more to do with investors' exposure to well-known factors rather than any sustainable secret sauce, according to quant house Scientific Beta. Scientific Beta senior investment specialist Mike Aked has some bad news for those expecting outperformance just for being ‘good’. Reported links between high environmental, social and governance (ESG) scores and above-market returns have dissolved on the acid test of careful statistical analysis. “The evidence is clear – and contrary to the belief of many investors – that there is no alpha in ESG,” Aked said. Academic studies have shown that any ESG benchmark-beating powers promoted in recent years can be attributed to exposure to already well-known factors such as quality. In a 2021 paper titled ‘Honey, I shrunk the ESG alpha’, for example, Scientific Beta demolished claims that tilts to high-scoring ESG strategies either generated outperformance or provided downside protection."