Outperformance by ESG indices versus parents stems from “better financial performance and/or higher investor valuation of constituents, HKEX says in a new study.
ESG indices do not necessarily sacrifice financial returns while pursuing ethical investment, says a new study published by the Hong Kong Exchanges and Clearing (HKEx).
The study, which examined 23 pairs of blue-chip equity indices and their corresponding ESG indices, found that across regional, global, and home country markets, ESG indices tended to have similar, if not better risk-return performances, outperforming on average their parent indices in terms of daily returns, volatility and period returns over the short- and medium-term investment horizons used within the research.
The HKEx study noted that ESG investment strategies had become increasingly popular with investors, driven by multilateral initiatives such as the Paris Agreement and the United Nations Sustainable Development Goals, “as well as the growing market demand for sustainable development”.
Rather than consistent factors explaining higher returns, the specific characteristics of individual ESG indices may contribute to their outperformance relative to parent indices. Several ESG indices showcased outperformance at times within the study period, with a number displaying significant statistical differences against their parent indices, in terms of volatility of returns.
More than half of the ESG indices outperformed their parent indices in terms of … [continues]
Read the full article on Regulation Asia’s sister publication, ESG Investor.