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Enhancing Equity Factor Model with Publicly-reported ESG Data


Iwata, Tsuyoshi; Weibel, Marc (2023). Enhancing Equity Factor Model with Publicly-reported ESG Data. SSRN 4411532, University of Zurich.

Abstract

This study examines the alpha-generating power of the public-report-based ESG score, which is based on ESG incident data collected by RepRisk from various public sources, and its relationship with the self-disclosure-based ESG score obtained from Refinitiv. We construct pure ESG factor portfolios to neutralize exposure to common style factors and isolate the pure ESG factor returns. Our results suggest that (i) the source difference is the main cause of the negative correlation between the public report ESG and the self-disclosure ESG score, (ii) the public report ESG score and its subscores produce the mixed results in terms of their adjusted factor returns across regions, (iii) the combination of the public report ESG and the self-disclosure ESG score significantly improves the risk-return profiles of the combined ESG factor returns in the US, EU and Japan.

Abstract

This study examines the alpha-generating power of the public-report-based ESG score, which is based on ESG incident data collected by RepRisk from various public sources, and its relationship with the self-disclosure-based ESG score obtained from Refinitiv. We construct pure ESG factor portfolios to neutralize exposure to common style factors and isolate the pure ESG factor returns. Our results suggest that (i) the source difference is the main cause of the negative correlation between the public report ESG and the self-disclosure ESG score, (ii) the public report ESG score and its subscores produce the mixed results in terms of their adjusted factor returns across regions, (iii) the combination of the public report ESG and the self-disclosure ESG score significantly improves the risk-return profiles of the combined ESG factor returns in the US, EU and Japan.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scope:Discipline-based scholarship (basic research)
Language:English
Date:6 April 2023
Deposited On:02 Aug 2023 08:55
Last Modified:27 May 2024 15:23
Series Name:SSRN
Number of Pages:34
ISSN:1556-5068
OA Status:Green
Publisher DOI:https://doi.org/10.2139/ssrn.4411532
Related URLs: (Organisation)
Other Identification Number:merlin-id:23637
  • Content: Published Version
  • Language: English