Does it pay off to love the angels and hate the sinners?
In the last few years, we have seen a widespread interest in sustainable investing on the part of investors. There is no doubt that this widespread interest in sustainable investing is good for society but is it good for investors? In this note, we shed light on this question by investigating the impact of ESG controversies on international equity prices. Our central finding is that, there is no real difference between the return of companies subject to high and low ESG controversy risk. However, companies that have improving ESG credentials earn higher returns than companies that have deteriorating ESG credentials. In other words, what matters for future performance is the dynamic of the firm’s ESG risk exposure rather than its current level.
- Does it pay to love the angels and hate the sinners_11092020_0.pdf