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ESG portfolios in different industries

Eiken, Johan LU and Winchester, Oliver LU (2023) NEKP01 20231
Department of Economics
Abstract
The objective of this essay is to examine the relationship between Environmental, Social and Governance (ESG) and abnormal returns for companies in six different industries: Consumer Goods, Financials, Health Care, Industrials, Technology and Utilities. In order to investigate this topic, we construct equally weighted high minus low (HML) portfolios for every individual ESG pillar and for ESG as a combined score. The portfolios are then evaluated using the capital asset pricing model (CAPM) and the Fama French three-factor model (FF3). The sample consists of companies from the S&P 500 and spans from 2006 to the end of 2021. The ESG data which is used is obtained from the Refinitve Eikon Datastream. The results show that there is little to... (More)
The objective of this essay is to examine the relationship between Environmental, Social and Governance (ESG) and abnormal returns for companies in six different industries: Consumer Goods, Financials, Health Care, Industrials, Technology and Utilities. In order to investigate this topic, we construct equally weighted high minus low (HML) portfolios for every individual ESG pillar and for ESG as a combined score. The portfolios are then evaluated using the capital asset pricing model (CAPM) and the Fama French three-factor model (FF3). The sample consists of companies from the S&P 500 and spans from 2006 to the end of 2021. The ESG data which is used is obtained from the Refinitve Eikon Datastream. The results show that there is little to no evidence that ESG has an effect on abnormal returns. The Consumer Goods industries show evidence of a negative relationship with the social pillar. This means that investors could potentially receive higher abnormal returns if they invest in companies within the Consumer Goods industry with a low Social score. When looking at the Health Care industry, there seems to be some evidence that suggests a negative relationship between ESG and abnormal returns. However, we note that these results can be influenced by the unordinary external circumstances caused by the Covid-19 crises which companies in the Health Care industry were exposed to. (Less)
Please use this url to cite or link to this publication:
author
Eiken, Johan LU and Winchester, Oliver LU
supervisor
organization
alternative title
The relationship between ESG scores and abnormal returns across industries
course
NEKP01 20231
year
type
H2 - Master's Degree (Two Years)
subject
keywords
ESG, Abnormal Returns, High minus Low, CAPM, FF3
language
English
id
9118323
date added to LUP
2023-06-19 10:03:37
date last changed
2023-06-19 10:03:37
@misc{9118323,
  abstract     = {{The objective of this essay is to examine the relationship between Environmental, Social and Governance (ESG) and abnormal returns for companies in six different industries: Consumer Goods, Financials, Health Care, Industrials, Technology and Utilities. In order to investigate this topic, we construct equally weighted high minus low (HML) portfolios for every individual ESG pillar and for ESG as a combined score. The portfolios are then evaluated using the capital asset pricing model (CAPM) and the Fama French three-factor model (FF3). The sample consists of companies from the S&P 500 and spans from 2006 to the end of 2021. The ESG data which is used is obtained from the Refinitve Eikon Datastream. The results show that there is little to no evidence that ESG has an effect on abnormal returns. The Consumer Goods industries show evidence of a negative relationship with the social pillar. This means that investors could potentially receive higher abnormal returns if they invest in companies within the Consumer Goods industry with a low Social score. When looking at the Health Care industry, there seems to be some evidence that suggests a negative relationship between ESG and abnormal returns. However, we note that these results can be influenced by the unordinary external circumstances caused by the Covid-19 crises which companies in the Health Care industry were exposed to.}},
  author       = {{Eiken, Johan and Winchester, Oliver}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{ESG portfolios in different industries}},
  year         = {{2023}},
}