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Factor exposures and diversification: Are sustainably screened portfolios any different?

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  • Arnaud Gougler

    () (University of Fribourg)

  • Sebastian Utz

    () (University St. Gallen)

Abstract

We analyze the performance, risk, and diversification characteristics of global screened and best-in-class equity portfolios constructed according to Inrate’s sustainability ratings. The financial performance of sustainably high-rated portfolios is similar to the risk-adjusted market performance in terms of abnormal returns of a five-factor market model. In contrast, low-rated portfolios exhibit negative abnormal returns. Firms with high sustainability ratings show lower idiosyncratic risk and higher exposure toward the high-minus-low and the conservative-minus-aggressive factor.

Suggested Citation

  • Arnaud Gougler & Sebastian Utz, 2020. "Factor exposures and diversification: Are sustainably screened portfolios any different?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(3), pages 221-249, September.
  • Handle: RePEc:kap:fmktpm:v:34:y:2020:i:3:d:10.1007_s11408-020-00354-4
    DOI: 10.1007/s11408-020-00354-4
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    More about this item

    Keywords

    Sustainable portfolios; Portfolio diversification; ESG scores; Screening approaches; Idiosyncratic risk;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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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