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Trading ESG vs. Trading E, S, and G Separately: An Exploratory Research

Author

Listed:
  • Michel Crouhy

    (Managing Partner, Black Diamond Advisory and Senior Adviser, Natixis, USA)

  • Dan Galai

    (The Hebrew University Business School, The Hebrew University of Jerusalem, Jerusalem 9190501, Israel)

  • Aner Ravon

    (Zirra Ltd., Tel Aviv, Israel)

  • Zvi Wiener

    (The Hebrew University Business School, The Hebrew University of Jerusalem, Jerusalem 9190501, Israel)

Abstract

Environment, Social, and Governance (ESG) criteria become a relevant factor in the investment universe. We develop an AI-based algorithm that uses public data, mainly Web-based information, to assign E, S, and G ratings to companies. Using our scoring procedure, we construct portfolios, comprising 50 firms each from the SnP 500 index, 50 firms with the highest scores and 50 with the lowest scores for 4 scoring categories: ESG, E, S, and G, for the years 2018-2021. We find that, except in 2021, high-ESG score portfolios consistently outperform low-ESG score portfolios. In particular, we observe that the shares of high G-score companies outperform low G-score portfolios, with the largest difference in performance between high and low-score portfolios. The data support the hypothesis that indicators of good corporate governance can identify better performing firms. We also note the outperformance of high S-rated portfolios in 2018–2020. We find that the E-portfolios behave differently from the S and G portfolios. Due to data constraints, we view this paper as exploratory only, and further research is due to validate our findings.

Suggested Citation

  • Michel Crouhy & Dan Galai & Aner Ravon & Zvi Wiener, 2025. "Trading ESG vs. Trading E, S, and G Separately: An Exploratory Research," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 15(02), pages 1-22, June.
    • Handle: RePEc:wsi:qjfxxx:v:15:y:2025:i:02:n:s2010139225400038
    DOI: 10.1142/S2010139225400038
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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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G19 - Financial Economics - - General Financial Markets - - - Other

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