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24 Aug 2022

ESG Investing: The Price of Controversy

ESG Investing: The Price of Controversy

Earlier this year, we introduced the RavenPack ESG Controversy Scoring Framework for corporate entities. In this paper, we analyze the relationship between ESG Controversy events and the share price of listed equities.

We find that :

  • The controversy momentum is a relevant measure of “new” information surrounding companies and their involvement in controversial events. While the volume-based measure suffers from biases in the cross-section and over time, the controversy momentum remains comparable across companies through time and across regions.

  • European investors price controversies more aggressively than their U.S. counterparts, which supports the commonly held view that the European investment community has achieved a more robust integration of sustainability issues into their investment process. Controversies tend to get priced in more rapidly in the U.S., necessitating a more refined timing strategy.

  • Integrating controversy-based signals into investment strategies can beneficially impact portfolio performance, but sparse signals only lead to marginal improvements.

Download the whitepaper on ravenpack.com/research and integrate a comprehensive ESG controversy scoring framework into your long-standing investment strategies.

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