Lee, Humphrey, and Shen (2010)

Lee, Darren D., Jacquelyn E. Humphrey, and Yaokan Shen. “The cost of meeting an ESG mandate.” Working paper (UQ Business School, University of Queensland, Brisbane, Australia), June 29, 2010.

From the authors’ abstract: “We investigate whether firms’ environmental, social and governance (ESG) ratings are associated with their financial performance and risk. Using a proprietary ESG ratings database, we find no difference in the risk-adjusted performance of UK firms with high and low ESG ratings. Additionally, the firms do not differ in their exposure to systematic risk, book-to-market, momentum or idiosyncratic risk factors. However firms with higher ratings are generally larger. The empirical evidence therefore indicates that UK investors are able to implement an ESG strategy without incurring any significant financial cost (or benefit) in terms of risk or return.”