ESG Factors & Risk-Adjusted Performance: A New Quantitative - - PowerPoint PPT Presentation

ESG Factors & Risk-Adjusted Performance: A New Quantitative Model

• N. C. Ashwin Kumar, Camille Smith, Leïla Badis, Nan Wang,

Paz Ambrosy & Rodrigo Tavares

Published 4 Oct 2016, Journal of Sustainable Finance & Investment ISSN: 2043-0795 (Print) 2043-0809 (Online)

Journal homepage: hYp://www.tandfonline.com/loi/tsfi20

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“ESG Risk Premium”

• Reference companies

809 companies to bring statistic significance

Industry matters

Materiality varies by industry; industry portfolios built

Data processing

• Inputs

Public companies/ market based

Risk & Volatility

Equity investments

Sustainability Index

157 Dow Jones Sustainability Index

• Matlab

The ESG Risk-Premium Model

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It is common sense: You’re LESS VULNERABLE in the long run if you do the right things.

• Most Basic Financial Equation: Risk & Return
• Are ESG and Risk Related? There is ‘hidden’ value in ESG if risk reduction is uncovered
• Evidence Based
• Geographically Global

www.slideproject.com 3

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ESG Methodology: Process

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The Model: Constraints

Information system Time & Track record Index Inclusion Bias Proprietary information

Results: Annualized Volatility

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Results: Annualized Return

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Results: Sharpe & Treynor Ratios

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ESG Factors Volatility by Industry Risk Risk-Adjusted Performance

ESG factors do impact the vola^lity of a stock return Different industries are affected differently by ESG prac^ces For all industries studied, companies with good ESG prac^ces show lower risk than reference companies of the same industry The difference in vola^lity for ESG and non-ESG represents a higher risk-adjusted return and should be integrated into investment analysis

Conclusion