No more excuses! Performance of ESG-integrated portfolios in Australia

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Lee, Darren D
Fan, John Hua
Wong, Victor SH
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2020
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Abstract

We find compelling evidence that integrating environment, social and governance (ESG) analyses into ongoing investment practices in Australia does not harm risk‐adjusted returns. High‐ESG‐rated portfolios consistently provide superior outperformance, diversification efficiencies, and lower overall risk compared to low‐ESG‐rated portfolios. In contrast to low‐rated portfolios, we find no evidence that high‐ESG‐rated portfolios underperform the market. All results remain robust to alternative time periods, market cycles, seasonality effects, ratings method and the inclusion of trading costs and management fees. Overall, our findings suggest that a simple ESG integration strategy may provide a natural hedge against the risks that arise from the evolving fiduciary responsibilities of professional investment managers relating to ESG risks.

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Accounting and Finance

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This publication has been entered as advanced online version in Griffith Research Online.

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Banking, finance and investment

Accounting, auditing and accountability

Applied economics

Social Sciences

Business & Economics

Australia

Diversification risk

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Lee, DD; Fan, JH; Wong, VSH, No more excuses! Performance of ESG-integrated portfolios in Australia, Accounting and Finance, 2020

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