The impact of ESG tilting on the performance of stock portfolios in times of crisis

• Published in: Finance research letters 2023-03, Vol.52, p.103522, Article 103522
• Main Authors: Teti, Emanuele, Dallocchio, Maurizio, L'Erario, Giulio
• Format: Article
• Language: English
• Subjects: ESG; Portfolios; Shareholders; Stakeholders
• ISSN: 1544-6123; 1544-6131
• DOI: 10.1016/j.frl.2022.103522

•An ESG scores based long-short portfolio analysis in the spirit of Fama and French was carried out.•There is robust evidence that the bottom decile portfolio provides negative alphas.•There is weak evidence that the long-short portfolio provides some positive abnormal returns.•The study improves our understanding of how ESG seems to be an effective risk management tool that does not impair financial performance.•ESG commitment might be advantageous for issuers in the long term. This paper investigates whether there exists a clear relationship between ESG indicators and financial performance with specific reference to the CoVid-19 crisis and to discover what are, if any, the key takeaways for issuers that emerge from such relationship. To assess this connection, we carried out an ESG scores based long-short portfolio analysis in the spirit of Fama and French (1992) on the European market in the period 2016‒2021. The results indicate that there is robust evidence that the bottom decile portfolio provides negative alphas and some weak evidence that the long-short portfolio provides some positive abnormal returns compared to all three most prominent asset pricing models (CAPM, Fama-French three-factor model and Fama-French five-factor model).