Passive ESG Portfolio Management—The Benchmark Strategy for Socially Responsible Investors

Julian Amon, Margarethe Rammerstorfer and Karl Weinmayer
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Julian Amon: Department of Finance, Accounting and Statistics, WU (Vienna University of Economics and Business), Welthandelsplatz 1, 1020 Vienna, Austria
Margarethe Rammerstorfer: Department of Finance, Accounting and Statistics, WU (Vienna University of Economics and Business), Welthandelsplatz 1, 1020 Vienna, Austria
Karl Weinmayer: Department of International Management, MU (Modul University Vienna), Am Kahlenberg 1, 1190 Vienna, Austria

Sustainability, 2021, vol. 13, issue 16, 1-21

Abstract: In this article, we investigate the notion of doing well while doing good from the perspective of passive portfolio strategies. We analyze a number of asset allocation strategies based on ESG-weighting and compare their financial and ESG performance for the US and Europe. We find no significant difference in the financial performance but superior ESG performance of ESG-based strategies. It can be concluded that, compared to a naive strategy, socially responsible investors are willing to pay a small premium for the impact of the portfolio via transaction costs when rebalancing the portfolio according to their preferences for social responsibility. In addition, when comparing the ESG-based strategies to a value-weighted strategy, we observe no significant difference in ESG performance but a high degree of significance in the superior financial performance of the ESG-based strategy. We also analyze the strategies with regards to the factor loadings given by the Fama–French five-factor model and a sixth factor denoted GMB (Good minus Bad) and find significant differences across the regions and strategies. Overall, the results show strong support of ESG-based strategies being preferred by socially responsible investors but also suggest that such strategies might be preferred by conventional investors looking for a passively managed alternative compared to a value-weighted index. Furthermore, it seems that such a strategy might be a more adequate benchmark for active SRI funds.

Keywords: sustainable finance; portfolio management; fund management; social finance; asset management; asset pricing; factor analysis; socially responsible investing (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:13:y:2021:i:16:p:9388-:d:618851

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