Effect of ESG Scores on Portfolio Performance: Evidence from Developing (E-7) Countries

This study aims to integrate ESG (Environmental, Social, and Governance) scores, a measure of sustainability, into asset pricing models in E-7 countries. To determine whether sustainability has an impact on portfolio performance, all firms with available data were included in the analysis. A new factor created from the ESG scores of these firms was integrated into the model based on the five-factor methodology published by Fama & French (2015). Our findings indicate that while ESG scores have both positive and negative effects in explaining returns, this impact is statistically significant only in Türkiye among the E-7 countries.