ESG Investment Strategies in Action

The chapter starts by discussing “The myth of poor performance” related to sustainable investment. It explores if sustainable investing affects financial results negatively. Initially, literature suggested mixed results: some evidence showed a reduction in diversification benefits and negative performance, but over time, many studies have disputed the idea that sustainable investing leads to poor performance. Sections 4.3 and 4.4 detail the connection between ESG (Environmental, Social, and Governance) parameters and financial performance, based on theoretical frameworks and previous research. Section 4.4.1 discusses how financial crises impact this relationship, particularly during the COVID-19 pandemic, when assets with high ESG scores demonstrated resilience, outperforming traditional funds. This highlighted the value of sustainability during economic uncertainty, increasing investor interest in ESG-focused asset managers. The second part of the chapter addresses whether sustainability is ultimately effective. It examines empirical evidence from investment strategies based on sustainability drivers through two methodologies. First, it compares the performance of long-only portfolios of top versus bottom ESG performers using a global stock database. High ESG ratings can lead to better financial and operational results, helping companies attract investment, access capital more affordably, and improve their reputation. Second, a multivariate approach is utilized to analyze financial performance against CSR levels, represented by ESG scores, while controlling for various factors to ensure reliable results and minimize biases in the research.