Can we enhance investment with ESG?

Wanling Rudkin, Charlie X. Cai and You Zhou

International Review of Financial Analysis, 2025, vol. 97, issue C

Abstract: Given evidence of low abnormal returns to ESG stock investment, growth in ESG focused stock investment suggests a wider utility from holding higher ESG performance stocks. We add detail and granularity through a double-sorted portfolio approach across two ESG measures and 24 anomalies. Traditional anomaly factor sort strategies may be enhanced by ESG information to produce an annualised ESG tilted alpha of more than 6% and provide an up to 7% alpha gain over the unconditional factor sort strategy. Investors using our strategies may increase ESG exposure and gain abnormal return with no alpha cost relative to traditional factor investing.

Keywords: ESG; Portfolio choice; Tilted portfolios; Sustainable investing (search for similar items in EconPapers)
JEL-codes: D62 G11 G12 Q5 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:97:y:2025:i:c:s1057521924007087

DOI: 10.1016/j.irfa.2024.103776

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