A Factor Approach to the Performance of ESG Leaders and Laggards

Naffa, Helena ORCID: https://orcid.org/0000-0003-4284-1601 and Fain, Máté ORCID: https://orcid.org/0000-0002-4828-5880 (2021) A Factor Approach to the Performance of ESG Leaders and Laggards. Finance Research Letters . DOI https://doi.org/10.1016/j.frl.2021.102073

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Official URL: https://doi.org/10.1016/j.frl.2021.102073

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Abstract

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

Subjects:

Finance

DOI:

https://doi.org/10.1016/j.frl.2021.102073

ID Code:

6431

Deposited By:

MTMT SWORD

Deposited On:

23 Apr 2021 13:55