Abstract:
ESG investing, through the theme of Principles of Responsible Investing, is widely
gaining popularity and acceptance by investors globally and in South Africa. The
increase in ESG investing opportunities has resulted in critical viability and economic
value-add questions in the investment fraternity. An opportunity has become available
for ESG rating agencies to prepare and provide ESG ratings for investment purposes.
The process impacts investees, firms in this case. The investors require clarification and
certainty regarding the financial costs and benefits of ESG investing in JSE.
The study aimed to determine the financial cost of ESG investing in the JSE. The study
was divided into two parts. Firstly, the study investigated if a high ESG rating offered
better financial returns than a low ESG rating portfolio. Secondly, the study investigated
if a high ESG rating performed better than the benchmark market portfolio, the All Share
Index. Thirdly, the study examined if ESG rating data from two different ESG data
providers translated to the same financial returns in the JSE. Lastly, the study
investigated if ESG rating data from two different agencies correlated in the JSE. Using
ESG data from Refinitiv and Bloomberg, the analysis was based mainly on the graphical
time series technique and supported with statistical tests.
The study found that a high ESG rating portfolio performed poorly compared to a low
ESG portfolio. The high ESG rating portfolios outperformed the All Share Index from
2015. The financial returns from ESG data of Refinitiv and Bloomberg tracked differed.
Finally, the ESG rating data from Refinitiv and Bloomberg exhibited a moderate to strong
correlation.
Accordingly, recommendations and future research work are provided and detailed in
the report.
