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Styles through a convergent/divergent lens: the curious case of ESG

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We look at a technique of classification, based on convergent and divergent patterns of returns that has been applied to hedge funds and alternative investments, and apply it to US equity investment styles with a particular interest in ESG. We extend the technique by looking at the impact of price changes on factor-mimicking portfolio weights. This analysis leads to powerful insights into style return dynamics. In particular, an ESG-ranked long-short portfolio looks more like momentum than value.

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  1. 1.

    See, for example, Adler and Kritzman (2008), Eccles et al. (2014), Krüger (2015), Bhandari and Javakhadze (2017), Brière et al. (2017), Lins et al. (2017), Amel-Zadeh and Serafeim (2018), Branch et al. (2019), Cao et al. (2019), and Dyck et al. (2019).

  2. 2.


  3. 3.

    The largest 1000 firms are the firms with the highest market capitalization as of December 2017.

  4. 4.

    See Howell and Krishnan (2014) and Getmansky et al. (2015) for details.

  5. 5.

    As an example of recent ESG reporting regulations, London Stock Exchange Group announced its 2018 Guide to ESG reporting regulations in major markets including the United Kingdom and the European Union. This guide has a full name of “Guide to ESG reporting: Guidance for Issues on the integration of ESG into investor reporting and communication” and can be found via the following url: https://www.lseg.com/sites/default/files/content/images/Green_Finance/ESG/2018/February/LSEG_ESG_report_January_2018.pdf.


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We thank Michael Steliaros, Oliver Williams and seminar participants at Goldman Sachs Asia Conference and Royal Holloway Finance Conference, University of London, for valuable comments.

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Correspondence to Stephen Satchell.

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Gao, Y., Satchell, S. & Srivastava, N. Styles through a convergent/divergent lens: the curious case of ESG. J Asset Manag (2020). https://doi.org/10.1057/s41260-019-00146-0

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  • Convergent
  • Divergent
  • ESG
  • Factor-mimicking portfolio
  • Styles

JEL Classification

  • G11
  • G17