Can ESG : categories portfolios influence financial performance? Evidence from Europe

• Autor(a) principal: Moreira, Felipe Simões
• Data de Publicação: 2023
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/42220
• topic: Sustainable investing; ESG-Categories portfolios; Financial performance; ESG scores; Europe; Investimento sustentável; Portfólios de categorias ESG; Desempenho financeiro; Critérios ESG; Europa; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

For the last two decades, Environmental, Social, and Governance (ESG) ratings have emerged as a crucial measure for investors interested in sustainable investments. By aligning their values with ESG factors, investors seek the flexibility to focus on individual ESG metrics while still leveraging potential abnormal returns. The academic literature aims to explore the relationship between financial performance and the different categories of ESG scores. There is contradicting empirical evidence on a positive or negative link. This thesis tries to contribute to the literature by exploring the particular impact of different categories. I analyze financial data and ESG scores from Refinitiv Eikon for the European market from 2005 to 2021. I build three different strategies based on equally-weighted ESG-Categories portfolios with a cut-off of 10%. Abnormal returns are determined by the well-known Carhart (1997) four-factor model. The results suggest that LongShort ESG-Categories portfolios can outperform European benchmark Indexes with higher Sharpe Ratio and Cumulative returns. However, the study concludes that despite preliminary abnormal gains in Long-Short Human Rights and Product Responsibility categories portfolios, these findings are not robust when increasing the cut-offs nor consistent after splitting into subperiods. Hence, investors should not expect to outperform the market using ESG-Categories portfolios.