An Investigation Into the Relationship Between ESG Scores and Risk-Adjusted Returns Across the Technology, Energy and Healthcare Sectors

This study investigates whether companies with higher ESG (Environmental, Social, Governance) scores generate superior risk-adjusted returns than companies with low ESG scores, across the technology, energy and healthcare sectors, with the chosen sample period being 2017 to 2024. The analysis includes classifying companies into high and low ESG for each sector, using S&P Global ESG Scores, and creating an equal-weight portfolio for high and low ESG per sector. This results in six portfolios constituting three companies each. Monthly stock price data sourced from Yahoo Finance is used to conduct analysis on Python, and metrics such as Sharpe ratio, annualized returns, annualized volatility, and t-tests are used. Findings showed the high ESG portfolio performing better in the technology and energy sectors, while the converse was surprisingly true in the healthcare sector. The t-test results showed that the observed differences in returns between portfolios for each sector was statistically insignificant, implying that ESG classification alone is insufficient to predict a company’s performance. Other factors such as sector context and market conditions also play a crucial role. However, the qualitative discussion reveals that companies with strong ESG practices may enjoy certain advantages over their peers.