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Sustainable investment – Exploring the linkage between alpha, ESG, and SDGs

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  • Geert Bekaert
  • Richard Rothenberg
  • Miquel Noguer

Abstract

Environmental, Social and Governance (ESG) investing has attracted much attention in asset management this past decade. Asset managers who consider ESG issues when making investment decisions potentially face a trade off with their fiduciary duty to attempt to outperform investment benchmarks (“generate alpha”). We first analyze the relationship between alpha generation and ESG metrics. However, because there are no well‐accepted ESG standards, we also measure the impact companies have on the U.N.'s Sustainable Development Goals (SDG's). Our research consists of three steps. First, we construct a sector‐neutral portfolio using MSCI ESG momentum scores from 2013 to 2018, and determine that it is feasible to generate positive alpha vis‐à‐vis the MSCI US index and other risk benchmarks. Second, we utilize structured and unstructured data to determine a company's net influence on the SDGs, which we call its SDG “footprint.” We show that an ESG momentum portfolio both outperforms the MSCI US index and has a relatively better SDG footprint than that of the index. Third, we establish a positive contemporaneous connection between the portfolio's ESG ratings momentum and its SDG footprint. Thus, a positive linkage exists between ESG, alpha, and the SDGs for our sample.

Suggested Citation

  • Geert Bekaert & Richard Rothenberg & Miquel Noguer, 2023. "Sustainable investment – Exploring the linkage between alpha, ESG, and SDGs," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(5), pages 3831-3842, October.
    • Handle: RePEc:wly:sustdv:v:31:y:2023:i:5:p:3831-3842
    DOI: 10.1002/sd.2628
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    Cited by:

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    2. Serdar Ongan & Ismet Gocer & Cem Işık, 2025. "Introducing the New ESG‐Based Sustainability Uncertainty Index (ESGUI)," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(3), pages 4457-4467, June.
    3. Alves, Rómulo & Krüger, Philipp & van Dijk, Mathijs, 2025. "Drawing up the bill: Are ESG ratings related to stock returns around the world?," Journal of Corporate Finance, Elsevier, vol. 93(C).
    4. Koundouri, Phoebe & Landis, Conrad Felix Michel, 2023. "ESG Momentum in International equity returns and the SDG content of financial asset portfolios," MPRA Paper 122005, University Library of Munich, Germany.
    5. P. Lemana & R. Matemane & M. Mokabane, 2026. "Corporate social responsibility committee and other germane governance mechanisms: impacts on corporate social responsibility performance," International Journal of Corporate Social Responsibility, Springer, vol. 11(1), pages 1-20, December.
    6. Yuan Ding & Daniel X. Zhang & Jessica K. Sun, 2025. "When Responsibility Meets Risk: Firm‐Level Political Risk, GHG Disclosure, and the Moderating Role of Market Complexities," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(6), pages 8329-8349, December.
    7. Cem Işık & Serdar Ongan & Hasibul Islam & Stefania Pinzon & Gul Jabeen, 2024. "Navigating sustainability: Unveiling the interconnected dynamics of ESG factors and SDGs in BRICS‐11," Sustainable Development, John Wiley & Sons, Ltd., vol. 32(5), pages 5437-5451, October.
    8. Waleed M. Alahdal & Ahmad Firdhauz Zainul Abidin & Muskan Sahu & May Abdulaziz Alamoudi & Hafiza Aishah Hashim, 2025. "Exploring the Moderating Effect of Regulatory Quality on the Relationship Between ESG Performance and SDGs Disclosure: Evidence From OECD Countries," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(6), pages 7934-7950, December.
    9. Elisabet Gómez‐González & Elisa Isabel Cano‐Montero & Jesús Fernando Santos‐Peñalver & Julián Chamizo‐González, 2025. "Empirical Analysis of Social Enterprises and Their Impact on Sustainable Development Goals," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(S1), pages 1355-1375, November.
    10. Ali, Shoaib & Al-Nassar, Nassar S. & Sindhu, Muzammal Ilyas & Naveed, Muhammad, 2025. "Sustainable synergy: Static and dynamic nexus between ESG and BRICS equity markets," Research in International Business and Finance, Elsevier, vol. 74(C).
    11. Muhammad Zeshan & Mariarosaria Morelli & Shahid Rasool & Piera Centobelli & Roberto Cerchione, 2025. "Empowering sustainable workplaces: A perspective on employee well‐being in the light of the job demand resource model," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(2), pages 1861-1878, April.
    12. Cem Işık & Serdar Ongan & Hasibul Islam & Gul Jabeen & Stefania Pinzon, 2024. "Is economic growth in East Asia pacific and South Asia ESG factors based and aligned growth?," Sustainable Development, John Wiley & Sons, Ltd., vol. 32(5), pages 4455-4468, October.
    13. Daniele Giordino & Elisa Ballesio & Nourah Alshaghdali & Dhruv Galgotia, 2026. "The relationship between organizational focus on AI, financial growth and sustainable development: Evidence from Europe," Post-Print hal-05433094, HAL.
    14. Jingnan Wang & Yue Liu & Boyan Zou & Tonghai Ji, 2025. "Green Light or Green Burden: ESG’s Dual Effect on Financing Constraints in China’s Heavily Polluting Industries," Sustainability, MDPI, vol. 17(20), pages 1-31, October.

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