The Independent Effects of Environmental, Social and Governance Initiatives on the Performance of UK Firms

We investigate the effect of environmental, social and governance factors on the financial performance of a sample UK firms. We examine the three factors separately in order to disentangle the relation of each with financial performance. We find that, overall, there is no difference in the performance of firms which achieve high or low environmental, social or governance rankings. Additionally, high and low ranking firms do not appear very different in terms of their systematic risks, book-to-market ratios or momentum exposures. However, high-rated firms are consistently larger in size. Our results indicate that UK investors are free to incorporate environmental, social or governance information into their investment strategies without incurring any significant financial cost (or benefit) in terms of risk or return