A Factor Approach to the Performance of ESG Leaders and Laggards

Naffa, Helena ORCID: and Fain, Máté ORCID: (2021) A Factor Approach to the Performance of ESG Leaders and Laggards. Finance Research Letters . DOI

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We introduce a factor approach to performance measurement of global ESG equity investments. We construct ESG pure factor portfolios (PFP) following Fama-MacBeth; then, applying Fama-French (FF) spanning regressions that simultaneously test performance and the validity of adding new ESG factors to the FF 5-factor model. To address endogeneity, we use a GMM-IV estimator. Our ESG portfolios do not generate significant alphas during 2015-2019, corroborating the literature's neutrality argument. We find no sufficient evidence for ESG factors to complement FF5. PFPs, nevertheless, may serve as ESG indices to quantify investment portfolio sustainability risks via performance attribution of the ESG factor tilt.

Item Type:Article
Uncontrolled Keywords:sustainable investing, ESG, performance measurement, pure factor portfolios, sustainability risks, GMM-IVd method
JEL classification:G11 - Portfolio Choice; Investment Decisions
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
G14 - Information and Market Efficiency; Event Studies; Insider Trading
G15 - International Financial Markets
Divisions:Faculty of Business Administration > Institute of Finance and Accounting > Department of Finance
ID Code:6431
Deposited By: MTMT SWORD
Deposited On:23 Apr 2021 13:55
Last Modified:20 Oct 2021 13:55

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