Where and When Does It Pay to Be Good? A Global Long-Term Analysis of ESG Investing

This paper explores the long-term performance of stocks with high corporate social performance (CSP), measured by so-called ESG scores depicting the environmental (E), social (S), and governance (G) dimension. We investigate the buy-and-hold abnormal returns of a long/short investment strategy including the top and low 20% stocks with respect to each of the ESG dimensions. The results of the bootstrap tests in a world-wide perspective indicate that financial markets are not capable to price different levels of CSP in the short run and in particular in the long run properly. The zero investment strategy produces significantly positive abnormal returns up to 20% in North America and Europe in a five year period. We also identify regional differences, for instance, a high social score does not pay in Japan and strong corporate governance yields significantly negative abnormal returns in Asia Pacific.