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Performance of ESG Investment Strategies: Evidence from the 2015–2020 Bull Market and the Impact of COVID-19

June 2, 2023
By 30810

Máté Fain is a 2022 Sylff Fellow (Corvinus University of Budapest, Hungarian Academy of Sciences Group). For this dissertation, he explored whether environmental, social and governance (ESG) investment strategies are compatible with boosting the corporate “bottom line.” He concludes that good ESG may not always generate superior returns under adverse market conditions such as a pandemic. However, combined with traditional styles, it might yield positive outcomes.

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What do oil, soybean, gold, and water have in common? The answer, at first, may be surprising: in late 2020, water joined these well-known commodities on Wall Street: Californian farmers, hedge funds, and municipalities can now purchase water futures to hedge related risks. Besides water, weather derivatives are another type of commodity responds to environmental challenges but has a more mature market: the Chicago Mercantile Exchange introduced the first exchange-traded weather futures contracts and corresponding options in 1999, mostly tracking cooling or heating days. Some studies have gone even further and explored designing and pricing air-pollution derivatives.

More importantly, these market developments and scientific initiatives on risk management draw attention to sustainability. Sustainability challenges are getting more severe as life-sustaining natural resources become scarce worldwide.

Fostering environmental, social, and economic dimensions of sustainability is an urgent challenge to society. The Paris Agreement signed in 2016 to mitigate climate change or the United Nations Sustainable Development Goals (SDGs) established in 2015 with a broader scope on environmental and social concerns underscores the inevitability of addressing sustainability.

Stakeholder theory argues that dealing with stakeholder claims – from customers, employees, local communities, shareholders, and even the natural environment – is imperative for companies to fulfill their mission. Meanwhile, advocates of the trade-off hypothesis contend that resource reallocation to sustainability activities does not pay off; instead, such activities raise operating costs due to the internalization of externalities. Consequently, I examined if, it is possible to reconcile sustainability with companies’ financial objectives.

The Research Question: Does "Doing Well While Doing Good" Prevail?

Alignment with sustainability goals might be assessed from as many angles as stakeholders exist. I focused on shareholder wealth and examined sustainability from an asset-owner perspective: is it possible to boost the bottom line by implementing sustainable corporate practices? Does the “doing well while doing good” concept prevail? If so, investors, as influential stakeholders, may drive sustainable economic growth.

Studying the impact of sustainability on shareholder value-added may manifest in several forms. Firstly, the analysis might cover accounting profitability, respond to how equity markets price sustainability, and identify the potential risk-adjusted excess returns for investors. My research intended to explore the last case.

In the investment literature, environmental, social and governance (ESG) is a broad umbrella term for firms’ sustainability . A wide range of ESG-conscious investment strategies exists, from exclusionary screening to direct shareholder engagement. My research concentrated on the ESG integration approach (applying ESG scores ranging from 0 to 100 of corporations to compile stock portfolios) and ESG-themed investing (equity portfolios that use megatrends such as energy efficiency, aging population, water scarcity, and cybersecurity). ESG integration is exceptionally popular, with US$25,000 billion in total assets under management, while thematic investing is the most significantly rising strategy, with a 2,250 per cent increase in 8 years.

Figure 1. Global growth of sustainable investing strategies
Note: AUM stands for “assets under management.” Source: GSIA (2020, p. 11)

For the ESG integration strategy, I applied separate environmental, social and governance ratings, and every stock belonged to one of the following portfolios: leaders, followers, loungers, laggards, and not rated. Thematic portfolios covered nine UN SDG-related challenges, such as water scarcity, aging population, and cybersecurity concerns. Each thematic portfolio fitted environmental, social and governance megatrends and encompassed firms with business models addressing critical sustainability challenges.

In compiling the ESG portfolio, more than 100 different investment styles, industries, and country exposures were controlled for to filter out secondary factor effects. Altogether the database included more than 15 million data points. The methodology followed a factor portfolio construction procedure: stock weights and returns were derived from extended Fama-MacBeth cross-sectional regressions (Fama, 1976; Fama and MacBeth, 1973). The time-series analysis of ESG factor portfolio returns applied the Fama and French (2018) right-hand-side approach.


This research contributes to the existing investment literature on sustainability in several ways. Firstly, it complements the active debate about the role of ESG in general, which is far from settled (i.e., it is still an open question if it is possible to achieve significant extra returns with ESG, or, on the contrary, these investments are underperformers causing loss to investors). Secondly, to the best of my knowledge, no one has yet applied a stakeholder-based conceptual model that differentiates “organizational” and “global” sustainability. Originally Garvare and Johansson (2010) drew the distinction between organizational and global sustainability. ESG integration is consistent with organizational sustainability, while ESG-themed investing corresponds more to global sustainability.

The dissertation emphasizes the megatrend concept and integrates signaling theory into the stock selection processes. It also introduces a new mathematical formula for measuring megatrend exposures. Using the right-hand-side approach in the ESG framework is a novelty as well. Further, ESG-themed investing is a relatively new strategy, having shorter history than other strategies, such as negative screening, which was the pioneer sustainability investing strategy; hence, it is under-researched in the literature. Finally, the database used is unique and comprehensive, making the data suitable for measuring the pure performance of ESG factors.

Empirical Results in a Nutshell

The analyses revealed some remarkable findings. Investors allocating resources to ESG leaders and thematic portfolios achieved returns in the longer term commensurate with risk. Further, in the ESG integration strategy, a nonlinear relation prevailed, which contradicts the literature’s most common findings that there is either a positive, negative or neutral relationship between financial and ESG performance (non-linearity means that financial performance does not increase proportionally with ESG performance, as there is a “peak” after which increasing ESG performance does not come with significantly higher financial performance; sometimes financial performance even decreases, suggesting an inverted-U graphical representation of the ESG-financial performance relation), supporting diminishing marginal returns to ESG (law of diminishing returns: a firm will get less and less extra output – here, financial returns – when it adds additional units of an input – here, better ESG compliance). Next, during the exogenous shock of the COVID-19 pandemic, the figures did not corroborate the literature’s “flight to quality” concept (i.e., investors begin to shift their assets away from riskier investments into safer ones). Finally, no sufficient evidence was found for ESG factors to complement Fama and French models (Fama-French models detect factors such as firm size and investment policy that could explain stock returns; if a new factor is found, it could be added to the previous ones).

In summary, in most cases, investors could realize at least fair returns with sustainable investing. This finding is consistent with the efficient-market hypothesis, i.e., share prices reflect all public information, stocks trade at their fair market value. In other words, although there is only a slight chance for investors to gain superior risk-adjusted returns, they could contribute to the higher goals of sustainability without sacrificing returns.


The empirical results imply that most ESG portfolios yielded non-negative excess returns, even after accounting for transaction costs up to 25-50 basis points per annum. Higher transaction costs, as is the case for some exchange traded funds (frequently abbreviated ETFs) with expense ratios reaching 80-100 basis points per annum, may indicate two things: ESG-themed megatrend investors are willing to sacrifice approximately 25-50 basis points of annual return to remain aligned with sustainability targets, or the expense ratio may well decline in the future (nowadays, the average expense ratio is around 0.60 per cent).

Portfolio managers who integrate sustainability in their investment portfolios undertake a dual optimization process that combines ESG strategies with fundamental valuation. The proposed ESG pure factor portfolios might be utilized as smart beta indices to measure investment portfolios’ ESG factor exposure. This method is superior to calculating the overall ESG rating of investment portfolios currently commonly used by asset managers, as it separates the performance contribution of ESG from the secondary factors such as geographical, industry, or style effects.

ESG portfolios allow asset owners and managers to align their investment policies with the requirements and targets of international standards and regulations. According to a representative of the central bank of Hungary, whom I interviewed, both strategies are consistent with the EU Sustainable Finance Disclosure Regulation requirements. Thematic investing might be aligned with the Taxonomy Regulation and can be flexibly adapted to the SDGs and the climate goals of the Paris Agreement.

These results do not provide sufficient evidence for “flight to quality” during the first wave of the COVID-19 pandemic regarding ESG leaders, which contradicts Albuquerque et al. (2020), Broadstock et al. (2021), and Ding et al. (2021). One possible explanation might be that secondary factor effects substantially influence good ESG portfolios. Once these secondary effects are considered and filtered out, the otherwise observable outperformance disappears.

In summary, good ESG is not necessarily a panacea to generate superior returns during adverse market conditions such as a pandemic. However, combined with traditional styles or sectors, it might yield positive outcomes.


Albuquerque, R., Koskinen, Y., Yang, S., & Zhang, C. (2020). Resiliency of environmental and social stocks: An analysis of the exogenous COVID-19 market crash. The Review of Corporate Finance Studies, 9(3), 593-621. https://doi.org/10.1093/rcfs/cfaa011  

Broadstock, David C., Kalok Chan, Louis T. W. Cheng, and Xiaowei Wang. “The Role of ESG Performance During Times of Financial Crisis: Evidence from COVID-19 in China.” Finance Research Letters 38 (2021): 101716. https://doi.org/10.1016/j.frl.2020.101716.

Ding, Wenzhi, Ross Levine, Chen Lin, and Wensi Xie. “Corporate Immunity to the COVID-19 Pandemic.” Journal of Financial Economics 141, no. 2 (2021). https://doi.org/10.1016/j.jfineco.2021.03.005.

Dodd, E. Merrick, Jr. “For Whom Are Corporate Managers Trustees?” Harvard Law Review 45, no. 7 (1932): 1145–63. https://doi.org/10.2307/1331697.

Fama, Eugene F. Foundations of Finance: Portfolio Decisions and Securities Prices. New York: Basic Books, 1976.

Fama, Eugene F., and Kenneth R. French. “Choosing Factors.” Journal of Financial Economics 128 (2018): 234–52. https://doi.org/10.1016/j.jfineco.2018.02.012.

Fama, Eugene F., and James D. MacBeth. “Risk, Return, and Equilibrium: Empirical Tests.” Journal of Political Economy 81 (1973): 607–36. https://doi.org/10.1086/260061.

Garvare, Rickard, and Peter Johansson. “Management for Sustainability – A Stakeholder Theory.” Total Quality Management & Business Excellence 21 (2010): 737–44. https://doi.org/10.1080/14783363.2010.483095.

Global Sustainable Investment Alliance. Global Sustainable Investment Review 2020. GSIA, 2020. http://www.gsi-alliance.org/trends-report-2020/.


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The Experiences of Indian Couples during the COVID-19 Pandemic

December 6, 2022
By 29781

Priyanshi Chauhan is a 2021 Sylff fellow conducting doctoral research at the Centre for South Asian Studies, Jawaharlal Nehru University. In this article, which is based on a study first published in Gender Issues, Chauhan discusses how gender inequalities have become more prevalent in India under the COVID-19 pandemic. Read on to learn about the ways in which the adoption of work-from-home arrangements has affected men and women differently among dual-earner families in Indian cities.

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The COVID-19 pandemic has exacerbated the already existing gender inequalities, with substantial implications on how women navigate the work-from-home settings. One of the ways in which the pandemic has affected women differently than men is through the increased burden of unpaid work. Prior to the pandemic, women in India were already spending more time on unpaid work (351.9 minutes a day) as compared to men (51.8 min/day) (NSO 2019). In addition, women spent an average of 367 min/day on paid activities compared to 486 min/day by men (NSO 2019). Thus, not only do women already bear a disproportionate burden of unpaid work, but employed women work for much longer hours than men.

Adding to it, the pandemic has created new types of unpaid work including homeschooling, caring for more people who now stay indoors, and sanitization and hygiene needs, which have added to women’s work. Simultaneously, the pandemic has led to the collapse of spatial separation between the workplace and household due to the adoption of work from home. This is significant because the distinction between paid work and unpaid care work emanates from the site of their performance. As both paid and unpaid work are performed within the household during the pandemic, this is likely to have implications on how men and women navigate work from home. Accordingly, I conducted semistructured interviews with 30 dual-earning married couples in India in the months of April and May 2021 to understand how gender intersects with the experiences of work from home in the household (Chauhan 2022). All participants in the study are from tier-1 metropolitan cities in India: 12 from Delhi, 6 from Bangalore, 5 from Mumbai, 3 from Chennai, and 4 from Hyderabad. All are post-graduates and are working professionals in the corporate sector. Interviews were conducted virtually because of the pandemic-related restrictions. All participants were interviewed separately from their partners. The findings are discussed below.


Sharing of Unpaid Work

Both men and women reported that their time spent on unpaid work increased during the pandemic. However, it would be amateur to conclude that gender inequalities in unpaid work have vanished. It has been found that for men, unpaid work is in addition to activities like relaxation, leisure, and pursuing hobbies, as compared to women, for whom household chores and care work have replaced these activities.

The type of unpaid work that men and women perform can also be categorized as masculine type and feminine type. Men are found to be doing such unpaid work as grocery shopping and laundry, which need to be performed with less frequency and can be done based on their availability and convenience. On the other hand, women are responsible for such work as cooking and related work and cleaning the dishes, which have to be performed multiple times during the day and are time bound. In childcare as well, a distinction is evident where women are responsible for work that is essential to the everyday needs of the children, such as feeding and bathing, as compared to men, who are mostly their children’s playmates or watch over them when their mother is not available. Thus, women play a primary role as household managers and primary caregivers, while men contribute only in supportive roles.

Indian women struggle to maintain work-life segregation. (Source: Freepik)

Navigating the Gendered Space-Time Arrangements at Home

Men also have greater control over the use of household resources, such as a work desk or private workspace. Men’s productive work is prioritized over their responsibilities for unpaid work as well as women’s responsibilities for both unpaid and paid work. Since there is a higher value placed on men’s productive work, the household facilitates their professional commitments in the work-from-home arrangements. Men’s workspace requirements along with their need to maintain privacy and artificial segregation between work and life are prioritized over women’s requirements.

As per the findings, women have a private workspace with adequate infrastructure only in cases where there is enough space to have two separate rooms dedicated to work. The majority of women work from either their bedrooms or the living room. In both cases, women’s allocation of workspaces is contingent on men’s allocation of better workspaces for themselves. For instance, the women who are working from the bedroom have reported that their husbands have a separate private work room. Similarly, for women working from the living room, their husbands have used the limited space in the bedroom to make a workspace for themselves. As such, these women have involuntarily moved to the common spaces to continue working from home. Only two couples in the sample reported men working from the living room and women using separate private workspaces for themselves. This is because even if men continue to work from the living room, they are rarely interrupted by the family. On the other hand, moving to the living room for their wives would mean regular interruptions and expectations from the family members that they are available for them all the time.

Unpaid work is also an important factor in determining women’s schedule of paid work. This leads to the integration of work and nonwork domains not only in terms of physical boundaries but also at the level of behavioral and cognitive boundaries. For men, unpaid work does not determine their scheduling of paid work. Rather, it is the other way around, where their professional commitments determine their availability and participation in unpaid household chores and care work.


Return-to-Work Preferences

There is a preference for the hybrid work model among both men and women. However, there are gender differences in the factors that determine the preferences about returning to work. For women, continuation of work from home is contingent on the availability of domestic workers and other family members working from the office. Factors that are common to both men and women include spending more time with children, work-life balance, and social isolation, among others. Some women also expressed their preference to shift toward part-time jobs or quit the labor force permanently to better manage their household responsibilities. This is because of the increasing challenge of work-life balance that women faced during the lockdown and the lack of support by family members for women pursuing their career ambitions.


Critiquing the Assumption of Gender Neutrality in Work from Home

The experiences thus indicate that the assumption of gender neutrality in the mainstream work-from-home models is misleading. The mainstream models of work from home are popular for providing flexibility and greater control over work. However, when gender is integrated into work-from-home models, it constrains the autonomy of women in deciding when and where to work. The perceived control and autonomy of women in making choices regarding working from home is in itself a product of gender norms and gender roles. Unpaid work is also at the core of boundary management between the work and nonwork domains.

Men have managed to demarcate the two domains to a greater extent, especially for behavioral and cognitive boundaries due to their gender privilege. The relatively high value that is placed on men’s productive work has offered them options to create artificial segmentation in the work-from-home arrangements regarding physical boundaries as well. By contrast, women have experienced a complete merging of the two domains.

It is therefore necessary to mainstream gender considerations and unpaid work in the work-from-home frameworks. In the process, it needs to be underscored that women’s needs in the work-from-home arrangements are not addressed in isolation from the gender dynamics that unfold within the household. Gender equality is not only a woman’s issue but a power relation between the genders. As such, men must be equally engaged in conversations on gender equality both at the workplace and at home.



Chauhan, P. 2022. “‘I Have No Room of My Own’: COVID-19 Pandemic and Work-from-Home through a Gender Lens.” Gender Issues 39, no. 4 (December 2022): 507–33. https://doi.org/10.1007/s12147-022-09302-0.

NSO (National Statistical Office). 2020. Time Use in India—2019. New Delhi: Ministry of Statistics and Programme Implementation, Government of India.

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The COVID-19 Pandemic in the Islands

April 6, 2022
By 30091

Maria Riwana Sahib, a 2012–13 Sylff fellow, looks back on how the COVID-19 situation unfolded in her native Fiji. As has been the case everywhere, the pandemic’s impact on the Fijian economy amplified the issues of domestic violence, unemployment, and xenophobia and affected school education. But the silver lining, Sahib says, has been the revival of the barter system, which has helped many weather the pandemic storm.

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Living in the Pacific Islands has many advantages and disadvantages. It is probably one of the most unsafe places when it comes to infectious diseases. Historically, populations have been depleted by infectious diseases due to our geographical location, that is, our isolation. But COVID-19, or the novel coronavirus, has changed the course of history in the modern age of technology and globalization. It has certainly caused a paradigm shift in terms of how we conduct our business and our lives. It is one of the many experiences throughout my life that has been etched in my memory, and as a millennial, it is one of the most interesting times.


Departing Majuro

I have worked and lived in the Republic of the Marshall Islands away from my island home of Fiji for the last seven years. In early 2020, I was contemplating returning home, unsure of my future and unaware of the realities that would follow. The novel coronavirus was declared a pandemic in March 2020, right around when I booked my flight back to Fiji. The flight was during the week in which the Marshall Islands declared that it was closing its borders. Subsequently, all flights going into and out of the islands were canceled. In this haste of closing the borders, many tourists in Majuro, the capital of the Marshall Islands, were stranded with no guarantee of the next available flight out. Among the stranded was me! My heart sank as I read the email from Nauru Airlines two days prior to the flight day, in which it provided options for the next available dates of flights going out of Majuro. I felt helpless and frustrated. I remember my friends Laisa, Kelesi, and Melba encouraging me and filling me with positivity. I believed more in their faith than I did my own.

I would like to believe that their prayers and mine were answered, as I sat in the last flight out of Majuro two days later. It was an eight-hour flight with two stopovers before I finally reached Nadi, three hours away from Suva, my home. Although I had come back numerous times before, it had never felt the way it did that day when the plane landed at Nadi International Airport. I was home, finally! The anxiety, the fear, the dreading had all been over, and I felt a weight had been lifted from my chest. I was finally home to see my beautiful daughter. She was initially the reason for my return, but I think the pandemic fueled my decision to return promptly.

Fiji went into lockdown one week after my return, as a case was soon discovered. People immediately went into panic mode, and naturally, panic buying followed. During the lockdown, a curfew was implemented together with movement restrictions and social distancing. These actions resonated with many countries where the coronavirus had spread. This was when reality hit home—that we were as vulnerable as the most developed countries, where the virus had far worse effect. I couldn’t help but wonder if this was a way of mother nature telling us that we needed to slow down our development and put a brake on exploiting our natural resources, contributing to the greenhouse effect, and harming our planet.

The economic downturn due to the virus had serious implications for the tourism industry (the largest revenue generator) in Fiji, and this affected thousands and thousands of Fijians. COVID-19 has led to an increase in social issues such as domestic violence, unemployment, and even xenophobia toward the Chinese people. The restriction measures brought out the best and worst in people including me. Fearing for the lives of our loved ones and taking to social media to hit back at people who broke the restriction measures were some of the traits displayed that I am sad about. I, for one, always try to empathize with people and their situations, but during this particular occasion it became clear that the worst in us could be brought out even when we try to the find the best in others.


Sahib and her daughter.

COVID-19 also affected the way education was conducted. My daughter’s private school was prepared to provide full-time online classes, as they already were using online platforms for learning at school. The transition to schooling full-time from home was a big adjustment for both my daughter and me. I am a single parent. Firstly, home is a place for relaxation, and it did not mesh well with the idea of schooling. Secondly, focusing on your own work while supervising your child’s schoolwork can sometimes be challenging when you both have deadlines to meet. It took me a while to adjust myself first before I could start focusing on my child. So instead of writing up a schedule, I followed a routine while flexibly switching the times of doing assignments and researching. My daughter usually had her scheduled Zoom classes (Zoom became a boom in 2020) in the early mornings. That would leave me some time to get my work organized.

I could not help but wonder about those who did not have the convenience of good Internet connections and those who could not afford the Internet. Schools were closed indefinitely as the government kept extending the opening date of normal school hours. The government went into overdrive and maximized their resources to provide subject lessons via Walesi, Fiji’s digital television service. This proved useful but to some extent only; students still had to print their notes and submit assignments at school, which meant mobility and exposure to the virus. The pandemic undeniably brought many social challenges, and it has been an economically trying time for many.

There is always a silver lining in a grim situation, they say. An ancient system was reintroduced in Fiji called the barter system. In the eighteenth century Adam Smith, a Scottish economist, philosopher, and author, argued that markets and economies existed before states. The father of modern economics believed that money was not created by governments but from bartering for goods and services. Anthropologists argued otherwise, saying that exchanges of goods and services occurred between strangers for reciprocity and redistribution. In any case, the pandemic revived this ancient trading system through Barter for Better Fiji, a Facebook page created by Marlene Dutta, a Fijian, in the spirit of giving when money has been tight and employment tough to find. This innovation through the use of technology connected people all over the country and the world, bringing solidarity to the human race in the belief that we are all in this together. This form of trading of goods and services without the use of money has assisted hundreds of people across the nation. For instance, in exchange for goodwill and groceries, six men known as K9E from the western side of Viti Levu, Fiji’s largest island, provide services ranging from indoor work such as maintenance, clearance, painting, moving homes, and light plumbing work to outdoor work such as grass cutting, farm preparation, backyard land cultivation, chicken shed construction, flower bed preparation, cutting, trimming, and pruning of trees, firewood collection, and fishing.

It has not all been hunky dory as far as the bartering goes, as there have been reports of dishonesty and fraudulent services. One of the challenges of dealing with strangers is that there is risk involved. Nevertheless, it has brought to many the assistance they desperately needed. Bartering has even assisted university students who suddenly had to stay home and study remotely. Although there has been a huge economic downturn in Fiji and across the globe, bartering has helped many to survive this pandemic.

One can only hope and pray that we can all bounce back from our situations and improve in 2022. Our new normal is the one in which we need to collectively support each other during a time of crisis, and perhaps bartering is a result of the new normal.


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Social Changes and Vital Responses

March 8, 2022
By 29124