Establishing ESG as Risk Premia

Julia L. Pollard, Matthew W. Sherwood and Ryan Grad Klobus
Volume 16, No. 1,  2018

This seminal research provides statistically significant evidence for the empirical identification
of Environmental, Social and Governance (ESG) as a factor of risk premium when
integrated within an equity portfolio. This study purposes to establish that the conceptual
development, adoption and population of ESG research-based strategies are leading
to the documentation and acceptance of ESG risk premium as an intuitively and measurably
independent risk premia. This study has demonstrated empirically, through a
cross-sectional analysis of increasingly developed ESG research, that ESG premia geographically
and longitudinally provides excess returns. Furthermore, this study presents
the potential for ESG premia to take its place alongside other well-documented risk premia
such as momentum, volatility, carry, size, value, and liquidity across asset classes.