ESG Investing in Recent Years: New Insights from Old Challenges

Abstract

This research is an update of the study that we published last year (Bennani et al., 2018) and that explored the impact of ESG investing on asset pricing in the stock market. It extends the original period 2010-2017 by adding eighteen months from January 2018 to June 2019. These new results confirm the previous results as we reach the same essential conclusions once again. ESG investing tended to penalize both passive and active ESG investors between 2010 and 2013. Contrastingly, ESG investing was a source of outperformance from 2014 to 2019 in Europe and North America. Moreover, ESG can be considered as a risk factor in the Eurozone, while it continues to be an alpha strategy in North America. However, the last 18 months exhibit new interesting patterns. First, we observe a transatlantic divide since the results for North America and the Eurozone are different for the recent period. Second, we document a partial ordering between ESG ratings and performance that can be explained by a shift from a static to a dynamic approach to ESG investing. Third, we note some discrepancies between active and passive management. Fourth, the social pillar seems to have gained traction these last years, and is no longer the laggard pillar. Fifth, factor investing and ESG investing are more and more connected. In what follows, we develop and explain these five key findings.