Sustainability and financial performance: an ESG-based empirical portfolios' analysis.

Abstract

This study focuses on the fast-growing world of Green Finance by looking closely to the ESG (Environmental, Social and Governance) sustainable investing approach and its market performance. First, by digging deeper into the origins of this approach, we shed a light on the controversial process of ESG ratings, by analyzing the three pillars and comparing the possible risks related to impact investing to its multiple potential benefits. Second, an overview of the relationship between ESG score and financial performance is carried out through a theoretical meta-analysis of the major studies on the topic, with the aim of highlighting the pros and cons of some of the approaches proposed in the related literature. Finally, we conduct an empirical analysis focusing on the study of the correlation between ESG investing and financial performance in Europe, using a series of artificially constructed portfolios characterized by different ESG scores.