First Faculty Advisor
passive investing; liquidity; comovement
CC-BY-NC-ND; CC-BY; CC-BY-SA; CC-BY-ND; CC-BY-NC-SA; CC-BY-NC
An emerging social pressure of being environmentally and socially responsible has been an increasingly popular concept through the past decades. Socially responsible investing (SRI), or environmental, social, and governance (ESG) investing is an investment strategy which aims to flood publicly trading companies with capital who operate according to specific morals and standards. Studies has proven investors who factor ESG into their portfolio strategies often see greater return, as firms are able to create more long-term value. The purpose of this study is to analyze the effects of ESG activity and ratings on the financial performance of firms in the energy sector comparing renewable and nonrenewable energy companies. Using Timeseries ESG data of the first quarter of 2018 from Morgan Stanley Capital International (MSCI), four different portfolios were created using a sample of 78 energy companies. The portfolios were split by renewable and nonrenewable companies, and companies with lagging ESG scores. By calculating the holding period return and running the Capital Asset Pricing Model with each portfolio, the results showed the laggard ESG nonrenewable energy portfolio generated the best return, Covid-19 pandemic, and short period of observation all played roles into the performance.