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DOING GOOD BY DOING WELL? THE 'CHICKEN AND EGG' PROBLEM IN THE ESG ALPHA DEBATE



6 Pages Posted: 26 Mar 2024

See all articles by Byung Hyun Ahn


BYUNG HYUN AHN

University of California, Berkeley - Haas School of Business


PANOS N. PATATOUKAS

University of California, Berkeley - Haas School of Business


GEORGE S. SKIADOPOULOS

University of Piraeus, Department of Banking and Financial Management; Queen
Mary, University of London, School of Economics and Finance

Date Written: February 25, 2024


ABSTRACT

We summarize the key findings and practical insights from our study on “Material
ESG Alpha: A Fundamentals-Based Perspective.” Our research explores the
association between ESG performance and stock returns amid the explosive growth
of ESG investing and the growing gap among major US asset managers. Our core
argument is that ESG scores do not change in a vacuum. More financially
established firms relative to their sector are more likely to not only create
material strengths but also resolve material weaknesses in their ESG scoring.
This fundamental link is key to explaining prior evidence of material ESG alpha.
We explore the value added of commercially available ESG scoring models, the
challenges in using alpha for assessing the efficacy of the sustainability
reporting standards, and the implications of our work for the SEC proposed rules
on ESG disclosures. Our evidence on material ESG alpha gets to the heart of the
SEC proposed rules for investment advisers and fund managers and provides a
fundamentals-based framework for identifying when ESG factors are generally no
more significant than other, non-ESG factors in the investment selection
process.



Keywords: ESG Alpha, Materiality, SASB, ESG Ratings, SEC, ESG Disclosures



JEL Classification: G11, G12, G14, M14, M41, Q51

Suggested Citation: Suggested Citation

Ahn, Byung Hyun and Patatoukas, Panos N. and Skiadopoulos, George and
Skiadopoulos, George, Doing Good by Doing Well? The 'Chicken and Egg' Problem in
the ESG Alpha Debate (February 25, 2024). Available at SSRN:
https://ssrn.com/abstract=4738046 or http://dx.doi.org/10.2139/ssrn.4738046


BYUNG HYUN AHN

UNIVERSITY OF CALIFORNIA, BERKELEY - HAAS SCHOOL OF BUSINESS ( EMAIL )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States



PANOS N. PATATOUKAS (CONTACT AUTHOR)

UNIVERSITY OF CALIFORNIA, BERKELEY - HAAS SCHOOL OF BUSINESS ( EMAIL )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States


HOME PAGE: http://https://sites.google.com/berkeley.edu/panos


GEORGE SKIADOPOULOS

QUEEN MARY, UNIVERSITY OF LONDON, SCHOOL OF ECONOMICS AND FINANCE

Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
United Kingdom


UNIVERSITY OF PIRAEUS, DEPARTMENT OF BANKING AND FINANCIAL MANAGEMENT ( EMAIL )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece


HOME PAGE: http://https://sites.google.com/view/george-skiadopoulos


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4 REFERENCES

 1. B H Ahn , P N Patatoukas , G S Skiadopoulos
    Material ESG Alpha: A Fundamentals-Based Perspective
    The Accounting Review Posted: 2024
    
 2. M Khan , G Serafeim , A Yoon
    Corporate Sustainability: First Evidence on Materiality
    The Accounting Review , volume 91 , issue 6 , p. 1697 - 1724 Posted: 2016
    
 3. JPMorgan and State Street quit climate group as BlackRock scales back by
    Patrick Temple-West and Brooke Masters in New York
    Financial Times Posted: 2024-02-15
    
 4. G Gensler
    Proposed Rules on "The Enhancement and Standardization of Climate-Related
    Disclosures for Investors
    Proposed Rules on "Enhanced Disclosures by Certain Investment Advisers and
    Investment Companies about Environmental, Social, and Governance Investment
    Practices Posted: 2022-05-25
    

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