Industry-adjusted ESG scores and global macroeconomic risks: evidence from factor-based portfolio strategies

Industry-adjusted ESG scores and global macroeconomic risks: evidence from factor-based portfolio strategies | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Industry-adjusted ESG scores and global macroeconomic risks: evidence from factor-based portfolio strategies Paolo Matteucci, Daniela Venanzi This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8393336/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This paper investigates whether industry-adjusted-ESG-integrated portfolio strategies provide superior risk-return trade-offs and distinct exposures to global macroeconomic risk factors compared to their non-ESG counterparts. Using 108 value, size, and momentum portfolios across six major equity markets from 2001 to 2023 (for a total of 27,216 returns), we evaluate performance and risk pricing through both descriptive statistics and a cross-sectional asset pricing model. Our findings indicate that ESG integration tends to not reduce average returns. More notably, ESG strategies exhibit lower volatility, especially in developed markets suggesting a potential shift toward a greater portfolio resilience. In the asset pricing tests, industrial production growth and term spread are significantly priced in both ESG and non-ESG portfolios, though ESG portfolios exhibit slightly lower estimated risk prices. Notably, the Environmental Performance Index factor is priced negatively and significantly only in non-ESG sample, indicating that weak environmental performance constitutes a priced source of systematic risk. Furthermore, the default spread is significant only in the ESG sample, possibly reflecting a greater vulnerability to credit conditions. Overall, ESG integration appears to reshape the exposure of factor-based portfolios to global macroeconomic risks not necessarily by enhancing returns but by shifting the emphasis toward risk management and sustainability alignment. These results contribute to the debate on the financial relevance of ESG investing and highlight the importance of macroeconomic context when evaluating ESG performance. The study offers valuable insights for asset managers, risk professionals, and regulators on how sustainability considerations alter portfolio risk profiles and the pricing of macro-financial risks. JEL classification: G11; G12; G15; F44 ESG strategies value momentum size macroeconomic risk asset management Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-8393336","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":609725685,"identity":"be6dae18-c7dd-4493-974d-1fc41a2675be","order_by":0,"name":"Paolo Matteucci","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAABEElEQVRIiWNgGAWjYHACxgNIHAk5oEADiGXHwIxbD1gLDxtEizFMSzIDM249yFoYEhtgljfgsMac/fCBAx8Ytsnbyzcfk/hRY5G+4XZz24ePOXbMDOz8B7BpsexJSzg4g+G2YQ8bW5pkzzGJ3A13DjbPnLktmQ+XwwwO5Bgc5mG4zdjDxmMmzdgA1HIjsZmZdxtQPS4t59+Atdj3sPF/A2lJN4BoqWdswKXlBsSWRKAtbCAtCVAth3FqsZzxDOgXg9vJPcfSjC2BfjGcCdTCOHPb8WQ2ZmYDrCHGn3zwwYeK27btzYcf3vhRUyfPdyP9McPHbdV2/PwHH2B1GBKJBtiwOguH4lEwCkbBKBgFKAAAApFbPjk3esgAAAAASUVORK5CYII=","orcid":"","institution":"Roma Tre University","correspondingAuthor":true,"prefix":"","firstName":"Paolo","middleName":"","lastName":"Matteucci","suffix":""},{"id":609725686,"identity":"508fa048-180c-47d1-a061-ab1089d17fd0","order_by":1,"name":"Daniela Venanzi","email":"","orcid":"","institution":"Roma Tre University","correspondingAuthor":false,"prefix":"","firstName":"Daniela","middleName":"","lastName":"Venanzi","suffix":""}],"badges":[],"createdAt":"2025-12-18 09:09:18","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-8393336/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-8393336/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":105170566,"identity":"1ed37787-6ae2-413f-b491-720a7ba37d4c","added_by":"auto","created_at":"2026-03-23 03:50:11","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":493545,"visible":true,"origin":"","legend":"","description":"","filename":"RevQuantFinanceAccount.pdf","url":"https://assets-eu.researchsquare.com/files/rs-8393336/v1_covered_0383dfd7-11a9-46d0-9af4-dcc49375558a.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Industry-adjusted ESG scores and global macroeconomic risks: evidence from factor-based portfolio strategies","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"ESG strategies, value, momentum, size, macroeconomic risk, asset management","lastPublishedDoi":"10.21203/rs.3.rs-8393336/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-8393336/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis paper investigates whether industry-adjusted-ESG-integrated portfolio strategies provide superior risk-return trade-offs and distinct exposures to global macroeconomic risk factors compared to their non-ESG counterparts. 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