Is It Time to Change the Climate for ESG Investing?

Individual investors have been intrigued by the possibility of merging their personal values with their investing goals for some time. Institutional investors are also increasingly open to considering environmental, social, and governance (ESG) factors when making investment decisions. Prior studies on ESG investing have focused on corporate financial performance, the presence of alpha, and risk mitigation. This study focuses on future stock returns over long-term time horizons. We find largely negative relationships among ESG scores and future stock returns. The analysis also explores returns to alternative combinations of ESG subcomponents (e.g., ES, SG, and EG). The tests of these subcomponent score combinations also reveal negative future return relationships. The results of this and other similar studies are highly dependent on the ESG score database that is used.