Scientific Beta

The Business Times: "For example, research from Scientific Beta published in May said there is a lack of solid evidence that ESG strategies outperform. The paper, titled "Honey, I Shrunk the ESG Alpha: Risk-Adjusting ESG Portfolio Returns", does not dispute that many of the ESG strategies have positive returns. But after adjusting these returns for risks, the "alpha" - that is, the excess risk-adjusted return - stands at zero."

The Business Times 04/08/2021

"(...) For example, research from Scientific Beta published in May said there is a lack of solid evidence that ESG strategies outperform. The paper, titled "Honey, I Shrunk the ESG Alpha: Risk-Adjusting ESG Portfolio Returns", does not dispute that many of the ESG strategies have positive returns. But after adjusting these returns for risks, the "alpha" - that is, the excess risk-adjusted return - stands at zero. The implication is that in investing along ESG lines, the outperformance may be driven by sector biases or certain equity exposure. That means that using ESG as an "alpha signal" is starting to look misleading, especially when putting money behind improving ESG practices by corporations is mission critical today. Indeed, Noël Amenc, CEO of Scientific Beta, said in a statement: "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." The danger is that in promoting alpha in ESG investing, such players are taking the great risk of disappointing investors on this supposed outperformance. This diverts money in time from an investment theme that is important for sustainable economic development, said Professor Amenc.(...)"