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Performance Assessment of Firms Following Sustainalytics ESG Principles

Aaron Filbeck, Greg Filbeck and Xin Zhao
The Journal of Investing ESG Special Issue 2019, 28 (2) 7-20; DOI: https://doi.org/10.3905/joi.2019.28.2.007
Aaron Filbeck
is a portfolio manager at the Joseph Group Capital Management in Columbus, OH
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Greg Filbeck
is the Samuel P. Black III Professor of Finance and Risk Management and director at the Black School of Business, Penn State Behrend in Erie, PA
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Xin Zhao
is a professor of finance at the Black School of Business, Penn State Behrend in Erie, PA
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Abstract

The authors explore whether firms rated highly by Sustainalytics based on ESG criteria are rewarded with superior long-term stock price performance. They find that firms with the highest ESG ratings statistically outperform the S&P 500 index, although not on a risk-adjusted basis. Firms with higher governance and social scores also statistically outperform those firms with corresponding lower scores. Firms with better (worse) governance scores produce statistically significant positive (negative) alpha values. Firms less likely to adhere to strong governance principles are penalized in the market, while firms more likely following strong social and environmental principles are negatively assessed. Improved governance scores and to a lesser extent improved social scores produce statistically significant positive alpha values whereas negative changes in environmental scores are positively received by the market. Overall, investors are not hurt by following an ESG philosophy with the market rewarding firms for good governance, penalizing those with strong environmental records, and meeting with ambivalence those with strong social records.

TOPICS: ESG investing, portfolio theory, portfolio construction

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The Journal of Investing: 28 (2)
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ESG Special Issue 2019
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Performance Assessment of Firms Following Sustainalytics ESG Principles
Aaron Filbeck, Greg Filbeck, Xin Zhao
The Journal of Investing Jan 2019, 28 (2) 7-20; DOI: 10.3905/joi.2019.28.2.007

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Performance Assessment of Firms Following Sustainalytics ESG Principles
Aaron Filbeck, Greg Filbeck, Xin Zhao
The Journal of Investing Jan 2019, 28 (2) 7-20; DOI: 10.3905/joi.2019.28.2.007
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