- ESG investing incorporates environmental (E), social (S), and governance (G) considerations into investment decisions. Until recently, ESG-themed investing comprised an increasing share of investments made by professional money managers and retail investors.
- Financial industry executives and regulators who have promoted ESG-themed investing argue that it will enhance investment performance either by increasing asset returns and/or by reducing investment risk.
- However, empirical studies, on balance, find no consistent and statistically significant evidence of a positive relationship between the ESG rankings of individual companies or portfolios of companies and the financial performances of those companies or investment portfolios.
- Most empirical studies have focused on US-based publicly traded companies. To our knowledge, this study is the first to focus on returns to ESG-themed investing for Canadian-based public companies.
- Using data from MSCI, a leading ESG ratings provider, we estimate the statistical relationship between changes in ESG rankings of companies and changes in equity returns for those companies using a sample of 310 companies listed on the Toronto Stock Exchange between 2013 and 2022.
- Our study finds that neither upgrades nor downgrades in ESG ratings significantly affect stock market returns.
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Table of Contents
- ESG Investing and Financial Returns in Canada 1
- About this Publication 2
- Executive Summary 3
- 1. Introduction 4
- 2. Framework for the Analysis 6
- 3. Data 7
- 4. Results 12
- 5. Conclusion 14
- APPENDIX 15
- Data 16
- MSCI ESG Ratings Key Issue Framework 16
- MSCI ESG Ratings 16
- Stock Returns 17
- Methodology 18
- Robustness analysis 19
- Endnotes 20
- References 21
- About the Author 23
