The ESG puzzle : a meta-analysis exploring the academic dissensus on the link between ESG and financial performance

Abstract

In this thesis, we aim to untangle the lack of consensus among previous studies on the subject of ESG investing. We replicate four articles that focus on the Global, U.S. and European markets, at different time periods, and following different methodologies. These articles are then the basis of a meta-analysis where we consider three main explanatory factors, namely sample selection, time period and methodology. We find that the sample selection of a study affects obtained results. The Global sample exhibits more negative results in terms of the relationship between ESG and financial performance than the other two samples, and the U.S. seem to lag behind Europe. Further, we find that the time period in focus can lead to differing results. Our study exhibits more negative results in previous years compared to a more recent time period, suggesting that ESG investing is becoming increasingly more beneficial. Related to methodology, we find that the choice of weight allocation in portfolios, namely value-weighted vs equal-weighted, affect obtained results. Equal-weighted ESG portfolios seem to perform poorer. Lastly, we remark that the choice of ESG score provider might impact the results of a study. In the replications where we substitute the original ESG data with a different provider, we obtain different results than the original study. Thus, we conclude that the lack of consensus within previous research on the subject of ESG investing, can be explained by the sample selection, the time period in focus, the methodology used, and the ESG score provider.