Establishing ESG as Risk Premia

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

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.