In the first part of this research paper, we showed the significant differences that exist between the ratings from different ESG providers. We concluded that the creation of a composite score reduces this initial heterogeneity while maintaining a high correlation with each individual rating.

Read part 1 on data heterogeneity

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In this second part, we seek to answer the following question: is there an ESG risk factor? The existence of such a risk factor would imply that ESG discriminates equities between one another. In order to answer this question, we use the ESG composite score to measure the effect of ESG on European equity market’s returns. As a quantitative manager, it seems indeed natural to us to assess the impact of ESG on financial markets through a more objective ESG rating.


  • A risk factor calculated from a single provider is problematic when it comes to objectifying ESG risk in the market given the low correlation level between ESG ratings from different providers.
  • A composite ESG rating allows a more reliable and objective calculation of ESG risk in the market.
  • Securities with a high rating but a rating that does not reach consensus among multiple providers would not extract an ESG risk factor from the market.
  • The ESG factor is also found to be increasingly correlated to the main statistical drivers explaining the equity market behavior.
Written in March 2022

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

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