Title: ESG dimensions in screening strategies: Impact on portfolio performance in periods of financial distress
Authors: Beatrice Bertelli - University of Modena and Reggio Emilia (Italy) [presenting]
Costanza Torricelli - University of Modena and Reggio Emilia (Italy)
Abstract: In the last decades, professional investors have accelerated the integration of environmental, social and governance (ESG) dimensions into their investment decisions attracted by the opportunity to improve the risk-return performance. The aim, framed within the literature on socially responsible investments (SRI), is to analyse the impact of screening strategies based on ESG dimensions, especially in periods of financial distress such as the 2008 global recession and the 2020 Covid-19 pandemic. Socially responsible portfolios are built from 559 stocks that made up the EURO STOXX index from 2007 to 2021 by using both negative and positive screening strategies based on Bloomberg ESG disclosure scores and different screening thresholds. Hence socially responsible portfolios' Sharpe ratio and alpha are compared with a benchmark portfolio that represents a passive strategy. The main results suggest that ESG screens represent good-performing strategies in the long-term, whereas, when the observation period is narrowed down to times of financial distress, a broader and passive strategy appears to be better performing. Moreover, positive screening strategies, and in particular the ones that involve the social dimension, limit diversification benefits and are characterized by significant underperformance during periods of crises.