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No more excuses! Performance of ESG‐integrated portfolios in Australia
Author(s) -
Lee Darren D.,
Fan John Hua,
Wong Victor S. H.
Publication year - 2021
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12670
Subject(s) - diversification (marketing strategy) , business , corporate governance , socially responsible investing , fiduciary , harm , investment strategy , risk management , hedge fund , investment management , actuarial science , financial economics , accounting , economics , finance , market liquidity , marketing , philosophy , duty , theology , political science , law
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.