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Empirical evidence of the relation between ESG performance and financial returns
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Resumo(s)
Investor’sinterestinEnvironmental,SocialandGovernance(ESG)factorshasbeenincreasinginrecentyears.However,ifatfirstmanyinvestorsandcompaniesseektobealignedwithsuchprinciplesonlytoshowtheywere,nowadaysmoreandmoreseethepotentialfinancialbenefitsoftakingESGcriteriaintoconsideration.Theideathatcompanies’effortstobecomemoresustainablereducethefutureprospectsofgrowthisbasedonmainlyunjustifiedassumptions.
Inthissense,theaimofthepresentresearchistoenlighteninvestorsaboutthefinancialgainsthatmayarisefromincludingESGcriteriaintheinvestmentdecisionprocess.
Sincethisisasignificantlynewtopicamongfinancialstudies,anintroductiontotheassetclassisofforemostimportance.Then,basedonformerliteraturereviewanddrivenbyhistoricalperformanceanalysisandportfolioevidence,empiricalresultswerecomputed.
BasedonMSCIdata,andmakingaseparationbetweenEmergingandDevelopedcountries,portfoliosofstocksthatperformgood(best-in-class)andbad(worst-in-class)intermsofESGwerebuiltandanalyzedagainstboththeirrespectivebenchmarksandtheFama-French(FF)threefactormodel.TheaforementionedportfoliosofstocksthathavehighandlowESGratingswerequarterlyrebalancedsothateachquarterthecompaniesintegratingtheportfoliosarethebestESGperformers.
Thebest-in-classportfoliosyieldedanannualizedreturn(from2007to2017)of11.7%forEMand5.4%forDM,outperformingthebenchmarksthatreturned2.6%and1.9%respectively.Throughouttheanalysis,theresultsforEMwerealwaysmoresignificant.
RegardingtheregressionsagainsttheFFthreefactormodel,andwiththegoaloffindingabnormalreturns,thebest-in-classportfoliosgeneratedapositivealpha(significantforEM)whilefortheworst-in-classthisvariablewasnegative(asonewasexpecting).Also,iswasconsideredtobeimportanttoincludetheMomentumfactorinordertoseeiftherewasapartoftheportfolios’returnsthatcouldbeexplainedbythisextrafactor.TheresultsachievedwereambiguousandmoreusefulforDevelopedMarketsportfolios.
Finally,andasasupplementanalysis,anlong/shortstrategythatbuysthebestESGperformersandsellstheworstESGperformerswasanalyzed.Ityieldedpositivesignificantabnormalreturns.
Descrição
Palavras-chave
Financial markets ESG Abnormal returns Emerging markets