City Research Online

Abstract

We examine whether U.S. dollar-based investors can do better investing in highly rated ESG countries than in medium and lower rated ESG countries using both cross sectional and panel data estimations. In general, we find evidence that investment in ESGLow scoring countries leads to better returns than investing in ESGHigh scoring countries which in turn provide better returns than investing in ESGMedium scoring countries. We also examine the issue of risk-adjusted excess returns using a variety of country risk-adjusted returns including the country-level Sharpe ratio, Treynor ratio and Alpha. In general, we find that ESGLow countries still outperform ESGHigh countries who in turn outperform ESGMedium countries. We also find that countries that have improved their ESG scores over the period 2000-21 have tended to provide the best returns for international investors and this group is mainly made up of ESGLow countries, although this is likely driven mainly by their higher economic growth rates. Finally, we examine the performance within the groups of ESGHigh, ESGMedium and ESGLow. In each case, we find that there is a positive relationship of returns with ESG scores within the group and that GDP per capita in levels has a negative impact on returns using both market exchange rate and purchasing power parity measures.

Publication Type:	Article
Additional Information:	This is the peer reviewed version of the following article: Asteriou, D., Pilbeam, K. , Litsios, I. & Pouliot, W. (2024). ESG Ratings and Investment Returns at the Country Level: Does Higher Mean Better?. International Journal of Finance and Economics, which will be published in final form at onlinelibrary.wiley.com/journal/10991158. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
Publisher Keywords:	ESG investing, country ESG ratings, Sharpe ratio, Treynor ratio, international CAPM
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
Departments:	School of Policy & Global Affairs School of Policy & Global Affairs > Economics
SWORD Depositor:	Symplectic Administrator

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