The QUICK Corporate Valuation Research Center has created a set of indices of listed stocks in Japan using ESG scores developed by Arabesque S-Ray GmbH.

TOKYO, JAPAN, January 18, 2022 /EINPresswire.com/ -- The growing public interest in ESG (Environment, Social, and Governance) issues is forcing the investment world to respond. However, the evaluation of ESG-related matters basically demands non-financial information, which makes it difficult to verify the effectiveness of taking ESG issues into account in relation to stock investment. As one way to tackle the problem, the QUICK Corporate Valuation Research Center created a set of indices of listed stocks in Japan using ESG scores developed by Arabesque S-Ray GmbH, a German ESG evaluation company, and it then examined their significance.

In the first stage, we screened stocks based on liquidity, and in the second stage, we selected the top 100 stocks using four types of ESG scores (ESG total score and ESG sub-scores (E, S, and G)). From the end of August 2017 to the end of July 2021, the index based on the ESG total score showed higher stock returns than TOPIX. Looking at the ESG sub-scores, which are evaluations that only consider the characteristics of each ESG theme, only the ESG sub-score for governance (G) resulted in higher stock returns than TOPIX.

The indices created using the ESG score in this study also demonstrated higher investment efficiency than TOPIX. However, when considering the alpha of the CAPM and Fama-French three-factor model, both scores showed variations from month to month, and the source of the excess returns was not always clear. In the future, companies will be required to disclose more non-financial information, and it will become clearer what factors affect risk and return.

In the future, ESG information will be increasingly positioned as an important factor when investing in stocks. Currently, institutional investors are using ESG information to strengthen their engagement with companies. In addition, the Japan Exchange Group (JPX) has also expressed its ESG-oriented stance. We hope that the content of this study will help you in your future investment analysis.

For more information, please visit this site.
https://www.nikkei.co.jp/nikkeiinfo/en/global_services/quick/effectiveness-of-investment-methods-using-non-financial-information-esg-scores.html

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