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ESG-screening and factor-risk-adjusted performance: the concentration level of screening does matter

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  • Ick Jin

Abstract

Constructing ESG-screened portfolios aims to reduce the aggregate ESG-risk at the portfolio level by excluding low ESG-score constituents from the selection universe. But ESG-screening imposes limits on potential diversification as well as alters risk exposures to systematic factors. To investigate ESG-screening’s impact on the factor-risk-adjusted performance of portfolios, we construct ESG-screened portfolios consisting of US equity mutual funds according to their returns-based ESG-scores. The result of performance contribution analysis for the sample period from 1999 to 2018 suggests that investors need to treat the concentration level of ESG-screening as a search parameter to balance the costs and benefits of ESG-screening.

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  • Ick Jin, 2022. "ESG-screening and factor-risk-adjusted performance: the concentration level of screening does matter," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 12(4), pages 1125-1145, October.
    • Handle: RePEc:taf:jsustf:v:12:y:2022:i:4:p:1125-1145
    DOI: 10.1080/20430795.2020.1837501
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