The Benefits of Socially Responsible Investing: An Active Manager’s Perspective

Our research looked at the relationship between ESG (environmental, social and governance) ratings of a company and its stock returns, volatility and risk-adjusted return in the post 2008 financial crisis era. We found an ex-post association between ESG ratings and stock returns, where higher return companies in aggregate had better ESG ratings. But the predictive power of ESG ratings on stock performance was most powerful on risk.