Are sustainable investments crisis resistant?

Abstract

An argument often voiced to support ESG investments is they are means to finance less risky industries and companies engaged in long-term sustainable operations. According to the author’s research hypothesis, investors in crisis periods turn their attention to stocks rated high from an ESG aspect, and as a result of increased demand, portfolios set up from ESG stocks overperform the market to generate significant positive alpha. To test her hypothesis, the author analysed the alpha-generating performance of six different stock portfolios set up meeting different ESG screening criteria in crisis periods between January 2003 and December 2019 applying three asset pricing models. The findings unambiguously reject the research hypothesis. They are robust both for different crisis definitions and cut-offs for portfolio selection.