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ESG business diversification and investment performance

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  • Isogai, Akifumi
  • Nozaki, Masatoshi
  • Yamamoto, Rei

Abstract

ESG investment has attracted attention in recent years, but various problems have been pointed out with the ESG scores. We focus on ESG revenue data −an alternative data that has become available in recent years− and discuss its potential to solve the problem of the ESG scores. We propose ESG business diversification as a new ESG investment measure to evaluate the proactivity of ESG activities and verify its effectiveness in the US and European markets. The results show that portfolios with high ESG business diversification achieve higher returns that cannot be explained by standard risk factors in the US market.

Suggested Citation

  • Isogai, Akifumi & Nozaki, Masatoshi & Yamamoto, Rei, 2025. "ESG business diversification and investment performance," Finance Research Letters, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325003952
    DOI: 10.1016/j.frl.2025.107132
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    References listed on IDEAS

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    1. Alexandre Clément & Élisabeth Robinot & Léo Trespeuch, 2022. "Improving ESG Scores with Sustainability Concepts," Sustainability, MDPI, vol. 14(20), pages 1-15, October.
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    4. Patel, Pankaj C. & Pearce, John A. & Oghazi, Pejvak, 2021. "Not so myopic: Investors lowering short-term growth expectations under high industry ESG-sales-related dynamism and predictability," Journal of Business Research, Elsevier, vol. 128(C), pages 551-563.
    5. Barros, Victor & Verga Matos, Pedro & Miranda Sarmento, Joaquim & Rino Vieira, Pedro, 2024. "ESG performance and firms’ business and geographical diversification: An empirical approach," Journal of Business Research, Elsevier, vol. 172(C).
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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