Vol. 20, No. 4, 2022
by Stephen Horan, Elroy Dimson, Clive Emery and Kenneth Blay
ESG investment strategies have experienced a massive inflow of capital over the past decade despite investors having few methods to evaluate their performance and communicate their ESG values, objectives, and preferences to investment managers. This paper develops a three-dimensional performance evaluation metric that incorporates return, risk, and ESG outcomes. It is predicated on an investor’s willingness to trade off financial gain for non-financial gain and can accommodate any traditional risk adjusted performance measure. Without such frameworks, investors can neither determine whether outcomes match their expectations nor compare performance across managers and allocate capital accordingly.