A survey conducted by Scientific Beta to collect market participants’ views on its recent white paper ‘”Honey, I Shrunk the ESG Alpha”: Risk-Adjusting ESG Portfolio Returns’ received responses from investment professionals with roles such as portfolio manager, chief investment officer, director of investment strategy research, head of asset allocation, head of ESG research, ESG analyst and research analyst.
The respondents to this survey come from institutional investors, asset managers, banks, consultants and wealth managers managing assets worth USD3.3 trillion, USD645 billion, USD4.1 trillion, USD179 billion and USD7.7 billion respectively.
The white paper questions the popular belief that ESG strategies generate outperformance and shows that the ESG alpha disappears when adjusting for industry and factor exposures. The results of the survey show that:
Most of the respondents agree that there is no sound evidence that ESG strategies offer any incremental value in terms of performance, and that most of the performance is captured by style factors.
Only 17 per cent of respondents believe that the finding of absence of outperformance is surprising.
Dr Felix Goltz, co-author of the study and Research Director at Scientific Beta, says: “Our study of ESG performance comes to a clear conclusion: when using standard risk adjustments in performance measurement, widely cited findings on positive ESG alpha disappear. Irrespective of performance, however, a key driver of the adoption of ESG investing is that non-pecuniary and risk characteristics of their portfolios matter to investors. Rather than turning ESG investing in another hunting ground for alpha, asset managers should perhaps take such non-pecuniary and risk objectives seriously. Judging from our survey respondents, focusing on objectives other than alpha is a credible value proposition for ESG investing.”
