Template-Type: ReDIF-Article 1.0

Author-Name: Balazs Stempler
Author-Workplace-Name: Budapest University of Technology and Economics
Author-Email: stemplerbalazs@gmail.com


Title: ESG Investing: The Use of ESG Ratings in a Smart Beta Strategy

Abstract: ESG investing has recently been growing in popularity but the range of investment products
available could still be widened. One possible approach is a combination of ESG ratings and
the smart beta strategy that modifies index weighting based on a factor; thus, it contains
elements from both active and passive fund management. The hypothetical funds created
in this paper using this method achieved returns of over 50 per cent between 2015 and 2019,
while the benchmark EURO STOXX 50 only provided a 19 per cent profit for investors during
the five-year period. ESG ratings were found to be significant as a variable, suggesting that
they can influence returns but other factors such as size or earnings growth have higher
explanatory power. Also, while currently the possibilities for ESG investments are limited in
Hungary, market players are starting to realise the potential of ESG, and with the suggested
approach new investors could be attracted by funds.

Classification-JEL: G11, G15, G23, G24
Keywords: ESG investing, fund management, stock indices, smart beta
Pages: 91-116
Volume: 20
Issue: 2
Year: 2021
File-URL: https://en-hitelintezetiszemle.mnb.hu/letoltes/fer-20-2-st4-stempler.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:20:y:2021:i:2:p:91-116