%0 Journal Article %A Mark K. Pyles %T Examining Portfolios Created by Bloomberg ESG Scores: Is Disclosure an Alpha Factor? %D 2020 %R 10.3905/jesg.2020.1.001 %J The Journal of Impact and ESG Investing %P 39-52 %V 1 %N 2 %X This article uses Bloomberg’s ESG disclosure data to create portfolios of high- and low-ESG firms over the recent market run of 2011–2017. The primary purpose is to determine whether disclosure is an alpha factor related to portfolio creation and management. We find that abnormal returns are generally higher for portfolios of lower-scoring firms. The author further documents that larger firms, with lower profitability, and higher dividend yields tend to have higher Bloomberg ESG disclosure scores. These variables also tend to inhibit market gains. Further, once controlling for firm characteristics, the author finds no significant influence on buy-and-hold abnormal returns from any of the ESG scoring variables. The results suggest positive screening based upon ESG disclosure to be a non-value-enhancing strategy, while also recognizing the strong relationship between disclosure and underlying firm characteristics that drive performance results.TOPICS: ESG investing, portfolio theory, portfolio construction, style investingKey Findings• Portfolios created by positive screening of Bloomberg’s ESG disclosure scores perform poorly as compared to portfolios created by selecting firms with lower scores. • Bloomberg’s ESG disclosure scores are largely proxying for other firm characteristics, most notably size, dividend payouts, and profitability. This adds to the belief that accurately capturing incremental differences in ESG remains difficult. • Once controlling for firm characteristics, there is little remaining influence from ESG disclosure scores on returns. This suggests that disclosure of ESG characteristics alone is not a significant alpha factor to be considered in portfolio management. %U https://jesg.pm-research.com/content/pmrjesg/1/2/39.full.pdf