ANALYSING THE IMPACT OF ESG SCORE ON EQUITY PORTFOLIO PERFORMANCE: A COMPARATIVE STUDY OF HIGH AND LOW ESG PORTFOLIOS: EVIDENCE FROM THE US EQUITY MARKET

Abstract

"This study aims to find out whether there is a significant difference between high and low environmental, social & governance (ESG) equity portfolios in the United States equity market. High and low ESG portfolios are constructed using the constituents of the S&P 500 index from 2018 to 2022, based on the ESG scores gathered from the Bloomberg database. ESG scores are ranked in descending order for each year, where the top 10% is considered the highest ESG portfolio and the bottom 10% is considered the lowest ESG portfolio. Portfolio return is calculated under both equal-weighted and value-weighted approaches. The comparison of the portfolios is done using three portfolio performance measurements: the Sharpe ratio, the Treynor ratio, and the Jensen alpha. According to the results under both equal-weighted and value-weighted approaches, a high ESG portfolio does not significantly outperform a low ESG portfolio. The findings of this study have several implications for investors, researchers, and policymakers. Findings suggest that investing in ESG concerned stocks may not significantly outperform the other but also does not underperform either. Therefore, this is a win-win situation for investors, where they can earn a marginally high return while also integrating sustainability and ethical considerations into their investment decisions. This study contributes to academic literature by finding that there is no significant difference between high and low ESG equity portfolios.