Publication Date

4-2022

School

School of Business

Major

Business: Economics; Business: Finance

Keywords

ESG, Returns, CSR, Risk Premium, MPT

Disciplines

Finance and Financial Management

Abstract

Countless researchers have sought to find out if there is a positive correlation between Environmental, Societal, and Governance (ESG) investing and returns that beat the market over the past few decades. To analyze what ESG investing is, the history of the practice, and if there can be any conclusion drawn between ESG investing and returns. A deeper understanding of what goes into returns, including modern portfolio theory, will uncover that ESG securities cannot be efficiently placed on the efficient frontier. Risk associated with ESG stocks cannot only be tied directly to beta, but also to external qualitative forces that make an impact on the risk return equation. The result is an ESG risk premium that needs further research and development to conclude if there can be abnormal returns associated with the investment of ESG securities.

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