ESG factors and risk-adjusted performance: a new quantitative model

New mathematical analysis, introduced in this article, demonstrates that companies that incorporate Environmental, Social and Fair Governance (ESG) factors show lower volatility in their stock performances than their peers in the same industry
ESG factors and risk-adjusted performance: a new quantitative model
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N. C. Ashwin Kumar¹, Camille Smith¹, Leïla Badis¹, Nan Wang¹, Paz Ambrosy¹ and Rodrigo Tavares²
¹IE Business School, Madrid, Spain; ²Granito & Partners

(Published in Journal of Sustainable Finance & Investment, 2016, Vol. 6, no. 4, 292–300)

Conventional finance wisdom indicates that less risk leads to lower returns. Against this belief, new mathematical analysis, introduced in this article, demonstrates that companies that incorporate Environmental, Social and Fair Governance (ESG) factors show lower volatility in their stock performances than their peers in the same industry, that each industry is affected differently by ESG factors, and that ESG companies generate higher returns. The study assessed, for a period of 2 years, 157 companies listed on the Dow Jones Sustainability Index and 809 that are not.

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