Abstract
Growth in ESG focused investment volumes suggests a wider utility from holding higher ESG performance stocks. A large theoretical literature is emerging in response. Evidence on the abnormal returns to ESG focused investment continues to suggest that there is little alpha justification for the observed patterns. Using a double-sort approach we demonstrate that traditional anomaly strategies may be enhanced by ESG to produce an ESG flavoured alpha. Whilst few of these ESG flavoured alphas are significantly different from the unconditional anomaly strategy, we show they do exist and are no lower than the unconditional counterpart. Investors may increase their ESG exposure without paying an alpha price. We demonstrate this for the highly liquid S&P 500 universe between 2005 and 2019 using a set of 24 anomalies. Our results are robust to choice of ESG measure, weighting and the asset pricing model used to generate the abnormal returns. Our strategies can therefore guide investors in making ESG informed choices.