ORCID

Abstract

We examine whether U.S. dollar-based investors can do better investing in highly rated ESG countries than in medium andlower rated ESG countries using both cross sectional and panel data estimations. In general, we find evidence that investmentin ESGLow scoring countries leads to better returns than investing in ESGHigh scoring countries which in turn provide better returns than investing in ESGMedium scoring countries. We also examine the issue of risk-adjusted excess returns using a variety ofcountry risk-adjusted returns including the country-level Sharpe ratio, Treynor ratio and Alpha. In general, we find that ESGLowcountries still outperform ESGHigh countries who in turn outperform ESGMedium countries. We also find that countries that haveimproved their ESG scores over the period 2000–2021 have tended to provide the best returns for international investors andthis group is mainly made up of ESGLow countries, although this is likely driven mainly by their higher economic growth rates.Finally, we examine the performance within the groups of ESGHigh, ESGMedium and ESGLow countries. In each case, we find thatthere is a positive relationship of returns with ESG scores within the group, and that GDP per capita in levels has a negative impact on returns using both the market exchange rate and purchasing power parity measures.

DOI

10.1002/ijfe.3090

Publication Date

2024-12-24

Publication Title

International Journal of Finance and Economics

ISSN

1076-9307

First Page

1

Last Page

24

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