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ESG Investing: From Sin Stocks to Smart Beta

Author

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  • Fabio Alessandrini

    (University of Lausanne; Banque Cantonale Vaudoise)

  • Eric Jondeau

    (University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute)

Abstract

Research on socially responsible investment in equity markets initially focused on sin stocks. Since then, the availability of data has been extended substantially and now covers environmental, social, and governance (ESG) criteria. Using ESG scores of firms belonging to the MSCI World universe, we measure the impact of score-based exclusion on both passive investment and smart beta strategies. We find that exclusion leads to improved scores of otherwise standard portfolios without deterioration of their risk-adjusted performance. Smart beta strategies exhibit a similar pattern, often in a more pronounced way. Moreover, our results demonstrate that exclusion also implies regional and sectoral tilts as well as (possibly undesirable) risk exposures of the portfolios.

Suggested Citation

  • Fabio Alessandrini & Eric Jondeau, 2019. "ESG Investing: From Sin Stocks to Smart Beta," Swiss Finance Institute Research Paper Series 19-16, Swiss Finance Institute, revised Mar 2019.
  • Handle: RePEc:chf:rpseri:rp1916
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3357395
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    Cited by:

    1. Federica Ielasi & Paolo Ceccherini & Pietro Zito, 2020. "Integrating ESG Analysis into Smart Beta Strategies," Sustainability, MDPI, vol. 12(22), pages 1-22, November.

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