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Can we enhance investment with ESG?

Author

Listed:
  • Rudkin, Wanling
  • Cai, Charlie X.
  • Zhou, You

Abstract

Given evidence of low abnormal returns to ESG stock investment, growth in ESG focused stock investment suggests a wider utility from holding higher ESG performance stocks. We add detail and granularity through a double-sorted portfolio approach across two ESG measures and 24 anomalies. Traditional anomaly factor sort strategies may be enhanced by ESG information to produce an annualised ESG tilted alpha of more than 6% and provide an up to 7% alpha gain over the unconditional factor sort strategy. Investors using our strategies may increase ESG exposure and gain abnormal return with no alpha cost relative to traditional factor investing.

Suggested Citation

  • Rudkin, Wanling & Cai, Charlie X. & Zhou, You, 2025. "Can we enhance investment with ESG?," International Review of Financial Analysis, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finana:v:97:y:2025:i:c:s1057521924007087
    DOI: 10.1016/j.irfa.2024.103776
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    More about this item

    Keywords

    ESG; Portfolio choice; Tilted portfolios; Sustainable investing;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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