Since the War, ESG Mattered for Equities

One month after Russia’s invasion of Ukraine, we looked at the impact it has had on the equities of European firms, given their proximity to the theater and reliance on Russian oil, and investigated what role ESG has played. To do so, we used the MSCI Europe Index as our starting universe and selected the top- and bottom-quintile stocks by ESG score to create two equal-weighted hypothetical portfolios as of the market close on Feb. 23, 2022, the day before the Russian invasion.¹

Looking at performance as of March 22, we see that the top-quintile stocks slightly outperformed the bottom quintile. Over the full period, however, performance diverged by as much as 2.5% at times.

Let’s look at what drove that performance. While stock-specific, industry and other factors all contributed to returns, the ESG factor played a meaningful role — and had a greater impact than all other style factors (such as value, quality, momentum and volatility). More specifically, the ESG factor contributed 0.48% to the performance of the top-ESG stocks in Europe, while detracting -0.61% from the bottom quintile.