The impact of screening strategies on the performance of ESG indices

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This paper analyzes the effect of screening strategies on the performance of ESG indices. We use 17 ESG indices that are actively managed, representing different index providers and ESG rating agencies, different ESG screening strategies, two types of weights for the construction of the ESG indices, and covering different investment regions (World, Europe and the US). The performance comparison between ESG and non-ESG indices and within ESG indices is examined from different risk-adjusted performance measures based on standard and tail risk measures. We show that the ESG screens for equities neither lead to a significant out-performance nor an under-performance compared to the benchmarks. For the ESG indices we find that no index provider displays the highest (or lowest) performances in each region of interest. We also find that the selection criteria lead to higher concentration in some sectors or countries, implying effects on the risk-adjusted performance of between ESG and non-ESG indices and also within ESG indices. Finally, the results on the ESG indices suggest that the weights used to construct these indices (sustainability score weights vs market cap-weights) seem to have an impact on their risk and their performance.

Author(s):

Amélie Charles    
Audencia
France

Olivier Darné    
Université de Nantes, LEMNA
France

Jessica Fouilloux    
Université Paris Sud
France