New empirical evidence for popularity in company ESG data

Abstract

ESG awareness among both professional and retail investors has seen an increase in the last two decades. A large part of the literature finds that investing in companies with a high ESG score comes at a cost. We study to what extent company ESG data is consistent with the popularity framework, which claims that assets with preferences investors find popular demand a higher premium. 5917 global stocks were sorted into four quantiles based on their ESG scores. Backtesting was performed on these quantiles from 2003-2019. Analysis on global economic sectors and country specific ESG was also peformed. Overall we conclude that a company's ESG score is consistent with the popularity framework. The study shows that the least popular quantile, apart from a few minor cases, achieves superior returns when compared to the most popular quantile.