with L. Lindsey and C. Schiller
We evaluate ESG investing through the lens of conditional asset pricing. We find that ESG characteristics do not define a new priced factor or deliver alpha, but they do explain variation in firms’ exposure to existing aggregate risks—particularly with respect to value. These conditional beta effects differ across ESG data providers, revealing an important economic dimension of ESG disagreement—even among positively correlated scores—helping to reconcile conflicting findings on the “greenium” in the literature. Finally, we show that negative ESG screening can improve a portfolio’s ESG profile with little impact on risk-adjusted returns.
Coverage: Institutional Investor
Seth Pruitt 