ESG business diversification and investment performance

• This study uses ESG revenue data −new alternative data− to measure ESG investments. • We propose ESG business diversification as a new investment measure for ESG investment. • In the US markets, ESG business diversification is highly effective for ESG investment. ESG investment has attracted attention in recent years, but various problems have been pointed out with the ESG scores. We focus on ESG revenue data −an alternative data that has become available in recent years− and discuss its potential to solve the problem of the ESG scores. We propose ESG business diversification as a new ESG investment measure to evaluate the proactivity of ESG activities and verify its effectiveness in the US and European markets. The results show that portfolios with high ESG business diversification achieve higher returns that cannot be explained by standard risk factors in the US market.