Can you trust the Harvard Business Review on ESG investing?
Today, HBR published an article by Professor Aaron Yoon in which he claims to have found evidence that ESG data, particularly on "material" factors, can allow investors to pick portfolios with higher returns.
Problem is, Professor Luca Berchicci and I debunked that evidence last year, and Prof Yoon should know this because he wrote a comment on our paper when it was published.?
To bring you up to speed, in 2016 Professors Yoon, Serafeim and Khan, published a study in which they claimed to have found evidence that ESG data could allow the selection of portfolios that outperformed the market by 600 basis points per year!? That is a huge effect, and Professor Yoon now claims “In part as a result of our paper, ESG investing took off.” ?
The problem is that an effect of that size seems to violate common sense -- particularly when you consider the widely available and highly flawed ESG data they used.? So, in 2022, Luca and I replicated the original study.? Long story short, we found their evidence to be extremely fragile and dependent on a very specific set of statistical modeling assumptions.? For example, when we ran 448 alternative models, 95% showed no significant evidence for a positive connection between ESG and stock return. Luca and I then sleuthed out the statistical problem in the original study and concluded the original estimate was a “statistical artifact”.? That’s polite academic language for “meaningless”. ?
I think it fair to say that Luca and my conclusions have held up so far.? Statistician Andrew Gelman has written about our work, and CalCPA found our paper solid and substantial enough to add it to their curriculum for CPAs.? Alex Edmans weighed in with support today.?
Back to HBR.? The editors should know this whole tawdry story.? One of the junior editors even wrote a draft summary of my paper with Luca. The editors rejected his draft. So it goes. But now they publish Professor Yoon's article?
Can you trust what you read in HBR on ESG??
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ESG Advising | Columbia University | Energy Access for All
8 个月Ummm no?
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9 个月This is a thought-provoking perspective. The ethical considerations around the pursuit of alpha from environmental and social factors are definitely worth exploring further.
Business Seer | Strategist | Educator | Luxury Product Designer | Storyteller | Team Architect | Entrepreneur | Ma?tre d'h?tel | Experience Designer | Plant Medicine Disruptor
9 个月Prof King, always bringing the wisdom! Thank you for leaning into the verifiable statistics and not being afraid to tackle the ?? in the room. You're a great role model, especially for those of us who are not afraid to speak truth to power.
Professor
9 个月Is ESG a fraud?
Business Leader | Strategist | Angel Investor | Mentor. Posts are personal opinions. Likes/Reposts are not endorsements.
9 个月Schools taught us to treat some of these University publications on par with sacred texts embodying the Lord's word. Time and again we realise that these are authored by people with feets of clay as well.