Environmental, social and governance composite ratings and stock performance

This paper studies the effect of non-financial performance on the stock performance of companies. By using ESG ratings from the Thomson Reuters Eikon DataStream we were able to sort the companies into portfolios of high and low ESG performance. The study finds that low scoring ESG companies significantly outperformed their high scoring counterpart for the period 2010-2015 but that the difference can partially be attributed to portfolio composition. The study also studied the effect across economy sectors and the results were inconclusive for the period prior to the financial crisis but that the significant outperformance mentioned above drove the industries to all display negative results after the financial crisis. The study also finds that changes in ESG ratings have no predictive power and provide no new information. This would be in line with the efficient market hypothesis that ESG, as a public information do not provide any information that is not already priced