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Is there any effect of ESG scores on portfolio performance? Evidence from Europe and Turkey

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  • Emre Zehir
  • Aslı Aybars

Abstract

Purpose - The purpose of this paper is to examine the performance of portfolios that are constructed based on environmental, social and governance (ESG) scores and consist of stocks located in Europe and Turkey. Design/methodology/approach - In order to form the portfolios, firstly all stocks are ranked in a descending way based on ESG-based (ESG, environmental, social and governance) scores, separately. Then, 10% of stocks with the highest scores are included in the “Top” portfolio and 10% of stocks with the lowest scores are included in “Bottom” portfolio and totally performance of eight portfolios are investigated. Finally, capital asset pricing model (CAPM) and Fama-French three-factor model are employed as performance measurement benchmarks. Findings - Results obtained from CAPM regression show that using ESG-based scores two portfolios underperform the market index. The results of the three-factor model provide that performances of Bottom ESG and Bottom GOV portfolios outperform the market excess return by 0.57% and 0.53%. The overall findings of this paper indicate that there is no relationship between socially responsible investment (SRI) and portfolio performance. These findings are in line with the efficient market hypothesis which indicates all information is reflected in prices. Originality/value - The aim of the study is to provide insight on the question of “whether SRI has any effect on the portfolio performance”. As far as the literature review is concerned it is seen that this study provide additional insight by utilizing a longer time span together with data from numerous markets.

Suggested Citation

  • Emre Zehir & Aslı Aybars, 2020. "Is there any effect of ESG scores on portfolio performance? Evidence from Europe and Turkey," Journal of Capital Markets Studies, Emerald Group Publishing Limited, vol. 4(2), pages 129-143, November.
    • Handle: RePEc:eme:jcmspp:jcms-09-2020-0034
    DOI: 10.1108/JCMS-09-2020-0034
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    Citations

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    Cited by:

    1. Sandu Diana-Mihaela, 2023. "Is There Any Effect of ESG Scores on Portfolio Performance in South Africa?," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 17(1), pages 1807-1817, July.
    2. Anastasia O. Volodina & Marina B. Trachenko, 2023. "ESG Investment Profitability in Developed and Emerging Markets with Regard to the Time Horizon," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 2, pages 59-73, April.
    3. Jitendra Nenavani & Asha Prasuna & S.N.V. Siva Kumar & Alivelu Kasturi, 2024. "ESG measures and financial performance of logistics companies," Letters in Spatial and Resource Sciences, Springer, vol. 17(1), pages 1-12, December.
    4. Ștefan Rusu & Marcel Ioan Boloș & Marius Leordeanu, 2023. "K-means and agglomerative hierarchical clustering analysis of esg scores, yearly variations, and stock returns: insights from the energy sector in Europe and the United States," Journal of Financial Studies, Institute of Financial Studies, vol. 8(Special-J), pages 166-180, June.

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