Sustainable finance : a look into impact-weighted accounting, ESG Scores and Alpha
Autor(a) principal: | |
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Data de Publicação: | 2022 |
Tipo de documento: | Dissertação |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10400.14/40862 |
Resumo: | Sustainable finance plays a key role in the transition to a more responsible and low-carbon economy. Sustainable investments accounted for 35.5 trillion $ in 2020 and currently represent over 30% of global AUMs. This paper examines the alpha generation ability of two sustainable investment approaches, ESG- and Impact-investing, on the US and Developed equity markets during the 2012-2020 period. This is done by creating six ESG and Impact strategies and regressing excess returns against CAPM, Fama-French three and five factor models. The study's contribution to the sustainable finance field is twofold. First, ESG performance is proxied by Refinitiv ESG scores, while most academic research uses MSCI ESG ratings. Moreover, the thesis leverages the innovative Impact-Weighted Accounting methodology and Database - developed by Harvard - to assess firms' environmental impact through monetized measures. The results show that portfolios long high and short low ESG scores generate positive and significant alpha, while portfolios long low and short high environmental impact (i.e., damage) firms generate significant albeit negative alpha (only in US equities). Furthermore, the thesis finds no evidence of alpha generation in neither ESG nor Impact momentum strategies, as well as in the aggregate Developed equity market. The paper concludes that both Refinitiv ESG scores and Impact-Weighted measures can be useful for decision-making and portfolio construction, despite leading to significantly different results. The paper also provides practical implications to alpha-seeking investors, who can benefit from being long a high minus low ESG portfolio and short a low minus high environmental impact portfolio. |
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Sustainable finance : a look into impact-weighted accounting, ESG Scores and AlphaSustainable investmentESG investingImpact investingImpact measurementEnvironmental impactImpact monetizationAsset managementAlphaInvestimento sustentávelInvestimento ESGInvestimento de impactoMedição do impactoImpacto ambientalMonetização do impactoGestão de ativosDomínio/Área Científica::Ciências Sociais::Economia e GestãoSustainable finance plays a key role in the transition to a more responsible and low-carbon economy. Sustainable investments accounted for 35.5 trillion $ in 2020 and currently represent over 30% of global AUMs. This paper examines the alpha generation ability of two sustainable investment approaches, ESG- and Impact-investing, on the US and Developed equity markets during the 2012-2020 period. This is done by creating six ESG and Impact strategies and regressing excess returns against CAPM, Fama-French three and five factor models. The study's contribution to the sustainable finance field is twofold. First, ESG performance is proxied by Refinitiv ESG scores, while most academic research uses MSCI ESG ratings. Moreover, the thesis leverages the innovative Impact-Weighted Accounting methodology and Database - developed by Harvard - to assess firms' environmental impact through monetized measures. The results show that portfolios long high and short low ESG scores generate positive and significant alpha, while portfolios long low and short high environmental impact (i.e., damage) firms generate significant albeit negative alpha (only in US equities). Furthermore, the thesis finds no evidence of alpha generation in neither ESG nor Impact momentum strategies, as well as in the aggregate Developed equity market. The paper concludes that both Refinitiv ESG scores and Impact-Weighted measures can be useful for decision-making and portfolio construction, despite leading to significantly different results. The paper also provides practical implications to alpha-seeking investors, who can benefit from being long a high minus low ESG portfolio and short a low minus high environmental impact portfolio.A presente tese analisa a capacidade de gerar ‘alfa’ associada a estratégias de investimento ESG e de impacto (ambiental) aplicadas aos mercados de capitais dos EUA e dos Países Desenvolvidos, durante o período 2012-2020. Para tal, construíram-se seis estratégias ESG e de impacto e executou-se uma análise de regressão em relação aos modelos CAPM, bem como Fama-French de três e cinco fatores. A tese contribui de duas formas para a área das finanças sustentáveis. Primeiramente, utiliza Refinitiv ESG scores para medir a performance ESG de empresas, quanto a maioria da literatura recorre a MSCI ESG scores. Adicionalmente, a tese explora uma base de dados alicerçada na metodologia ‘Impact-Weighted Accounting’ (desenvolvida por Harvard) que permite monetizar o impacto ambiental das empresas. Os resultados mostram que portefólios com posições longas em empresas de alto ESG score e posições curtas em empresas com baixo ESG score geram ‘alfa’ positivo, enquanto que portefólios longos em baixo impacto ambiental e curtos em alto impacto ambiental geram ‘alfa’ negativo (ambas conclusões aplicáveis e estatisticamente significativas apenas no universo dos EUA). Adicionalmente, não foram encontradas provas empíricas de que estratégias de momentum associadas a impacto ou ESG tenham a capacidade de gerar ‘alfa’. Assim, conclui-se que tanto os Refinitiv ESG scores como medidas de monetização de impacto ambiental podem ser úteis na tomada de decisões, construção de carteiras e na geração de alfa.Guarniero, PieralbertoVeritati - Repositório Institucional da Universidade Católica PortuguesaCastelão, Beatriz Loureiro2023-04-18T11:24:18Z2022-10-212022-092022-10-21T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/masterThesisapplication/pdfhttp://hdl.handle.net/10400.14/40862TID:203133269enginfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-07-12T17:46:25Zoai:repositorio.ucp.pt:10400.14/40862Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T18:33:33.160423Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Sustainable finance : a look into impact-weighted accounting, ESG Scores and Alpha |
title |
Sustainable finance : a look into impact-weighted accounting, ESG Scores and Alpha |
spellingShingle |
Sustainable finance : a look into impact-weighted accounting, ESG Scores and Alpha Castelão, Beatriz Loureiro Sustainable investment ESG investing Impact investing Impact measurement Environmental impact Impact monetization Asset management Alpha Investimento sustentável Investimento ESG Investimento de impacto Medição do impacto Impacto ambiental Monetização do impacto Gestão de ativos Domínio/Área Científica::Ciências Sociais::Economia e Gestão |
title_short |
Sustainable finance : a look into impact-weighted accounting, ESG Scores and Alpha |
title_full |
Sustainable finance : a look into impact-weighted accounting, ESG Scores and Alpha |
title_fullStr |
Sustainable finance : a look into impact-weighted accounting, ESG Scores and Alpha |
title_full_unstemmed |
Sustainable finance : a look into impact-weighted accounting, ESG Scores and Alpha |
title_sort |
Sustainable finance : a look into impact-weighted accounting, ESG Scores and Alpha |
author |
Castelão, Beatriz Loureiro |
author_facet |
Castelão, Beatriz Loureiro |
author_role |
author |
dc.contributor.none.fl_str_mv |
Guarniero, Pieralberto Veritati - Repositório Institucional da Universidade Católica Portuguesa |
dc.contributor.author.fl_str_mv |
Castelão, Beatriz Loureiro |
dc.subject.por.fl_str_mv |
Sustainable investment ESG investing Impact investing Impact measurement Environmental impact Impact monetization Asset management Alpha Investimento sustentável Investimento ESG Investimento de impacto Medição do impacto Impacto ambiental Monetização do impacto Gestão de ativos Domínio/Área Científica::Ciências Sociais::Economia e Gestão |
topic |
Sustainable investment ESG investing Impact investing Impact measurement Environmental impact Impact monetization Asset management Alpha Investimento sustentável Investimento ESG Investimento de impacto Medição do impacto Impacto ambiental Monetização do impacto Gestão de ativos Domínio/Área Científica::Ciências Sociais::Economia e Gestão |
description |
Sustainable finance plays a key role in the transition to a more responsible and low-carbon economy. Sustainable investments accounted for 35.5 trillion $ in 2020 and currently represent over 30% of global AUMs. This paper examines the alpha generation ability of two sustainable investment approaches, ESG- and Impact-investing, on the US and Developed equity markets during the 2012-2020 period. This is done by creating six ESG and Impact strategies and regressing excess returns against CAPM, Fama-French three and five factor models. The study's contribution to the sustainable finance field is twofold. First, ESG performance is proxied by Refinitiv ESG scores, while most academic research uses MSCI ESG ratings. Moreover, the thesis leverages the innovative Impact-Weighted Accounting methodology and Database - developed by Harvard - to assess firms' environmental impact through monetized measures. The results show that portfolios long high and short low ESG scores generate positive and significant alpha, while portfolios long low and short high environmental impact (i.e., damage) firms generate significant albeit negative alpha (only in US equities). Furthermore, the thesis finds no evidence of alpha generation in neither ESG nor Impact momentum strategies, as well as in the aggregate Developed equity market. The paper concludes that both Refinitiv ESG scores and Impact-Weighted measures can be useful for decision-making and portfolio construction, despite leading to significantly different results. The paper also provides practical implications to alpha-seeking investors, who can benefit from being long a high minus low ESG portfolio and short a low minus high environmental impact portfolio. |
publishDate |
2022 |
dc.date.none.fl_str_mv |
2022-10-21 2022-09 2022-10-21T00:00:00Z 2023-04-18T11:24:18Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
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info:eu-repo/semantics/masterThesis |
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masterThesis |
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publishedVersion |
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http://hdl.handle.net/10400.14/40862 TID:203133269 |
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TID:203133269 |
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eng |
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eng |
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openAccess |
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