The Role of ESG Investing in Portfolio Management

Presenter

Peter Joseph Sullivan

Campus

UMass Amherst

Sponsor

Hernan D. Bejarano, Department of Resource Economics, UMass Amherst

Schedule

Session 3, 1:30 PM - 2:15 PM [Schedule by Time][Poster Grid for Time/Location]

Location

Poster Board C10, Poster Showcase Room (163), Row 1 (C1-C10) [Poster Location Map]

Abstract

This thesis explores the relationship between Environmental, Social, and Governance scores and financial returns of companies in the S&P 500 over the last 5 years. Sustainable investing has come to the forefront of the investment world, as asset managers look to become more efficient in financial analysis and limiting downside risk. A multivariable regression analysis was completed from numbers used from Bloomberg with varying duration financial performance as one variable, and ESG scores, composite and individual as the other variables. Control variables are displayed, specifically market capitalization, number of employees, and industry correlation to show unskewed and fair results. Preliminary results from the regression displayed a positive coefficient for Composite and Environmental scores with a 95% confidence level. This shows Composite and Environmental scores are the most influential in correlation with financial performance, and an increase in either would improve stock performance rather than Social or Governance metrics. Compared to previous research (Velte 2017, Marsat, 2016), findings from this study contradict previous, with Environmental being the best indicator of financial performance instead of Governance. This finding can give conventional portfolio managers another aspect of the investment process to increase the accuracy of returns and limit downside risk. The movement towards sustainable investment is only increasing in the coming years, and financial models will begin to add these inputs when financial reporting and standardization continue to increase. 

Keywords

Sustainability, Investing, Portfolio Management, ESG ratings

Research Area

Finance

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