ESG Investing: The Price of Controversy

August 24, 2022

Sustainability factors can severely impact the financial performance of companies, and investors should account for ESG risks in their portfolio construction process. We analyze the relationship between ESG controversy events detected in RavenPack Edge, and share prices of listed equities.

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In our previous research paper, we introduced the RavenPack ESG Controversy Scoring Framework for corporate entities. In this paper, we analyze the relationship between ESG Controversy events and the share price of listed equities.

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We find that :

  • The controversy momentum is a relevant measure of “new” information surrounding companies and their involvement in controversial events. While the volume-based measure suffers from biases in the cross-section and over time, the controversy momentum remains comparable across companies through time and across regions.

  • European investors price controversies more aggressively than their U.S. counterparts, which supports the commonly held view that the European investment community has achieved a more robust integration of sustainability issues into their investment process. Controversies tend to get priced in more rapidly in the U.S., necessitating a more refined timing strategy.

  • Integrating controversy-based signals into investment strategies can beneficially impact portfolio performance, but sparse signals only lead to marginal improvements.

Download the whitepaper for details on our model, and integrate a comprehensive ESG controversy scoring framework into your long-standing investment strategies.

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RavenPack’s ESG Controversy Scoring Framework is based on real-time detections of events across 40,000+ news sources in 13 different languages. It follows an event-based approach that can help assess the extent of a firm’s ESG controversy exposure through time by monitoring real-time news coverage.