Is ESG Investing The Future? A Comparison Of Old And New Investment Strategies

Abstract: This thesis researches whether investing in stocks with high ESG-scores is a viable investment strategy compared to investing in stocks with low PE-ratios. This has been done through first testing the relationship between annual returns and ESG-scores and PE-ratios respectively. After this, portfolios based on low and high ESG-scores and PE-ratios respectively, have been formed to compare the excess returns and the risk adjusted returns between the portfolios. The data used in these tests consist of 1957 firms that have been publicly traded on any US exchange for at least one year between 2010 and 2022. The results show that positive relationships with annual returns exist for both ESG-scores and PE-ratios. Further, although no differences in excess returns could be found between the portfolios, the high ESG portfolio is shown to be less risky in comparison thus providing higher risk adjusted returns.