The Global Underperformance Facing ESG Investors.
“Their findings led Cakici and Zaremba to conclude: ‘Investors’ hopes of the superior performance of responsible companies are futile. By buying ESG companies, investors typically take substantial exposure to big companies. Therefore, they sacrifice the small-cap premium that otherwise could be earned.
To implement successful ESG strategies, investors should control the size structure and exposure of their portfolios. Isolating the firm size influence would potentially allow incorporating the ESG criteria in portfolio construction without harming its profitability. Doing well (or at least decently) while doing good would still be possible.’
They did add, however, that once they isolated the role of firm size, they did not observe any detrimental impact of corporate social responsibility. Offering words of hope, they concluded: ‘Being good, in this case, does not prove to be costly.’ Even better, the high-scoring stocks are less risky.”
[COMMENTARY] This is a thoughtful and informative article. There’s much more to this article than its title infers!
The Global Underperformance Facing ESG Investors, by Larry Swedroe, April 10, 2023, Advisor Perspectives, USA.