RT Journal Article SR Electronic T1 Sustainable Investing: ESG versus SDG JF The Journal of Impact and ESG Investing FD PMR SP jesg.2021.1.019 DO 10.3905/jesg.2021.1.019 A1 Carmine De Franco A1 Johann Nicolle A1 Lan-Anh Tran YR 2021 UL https://pm-research.com/content/early/2021/05/04/jesg.2021.1.019.abstract AB In this paper, we compare the established ESG-oriented to the more recent SDG-driven investment strategies in the United States and Europe. We have built cap-weighted portfolios based on ESG scores (Low, Mid, High) and comparable portfolios based on SDG scores. In the observed period, we show that most of the SDG premium is driven by the sector allocation effect: Technology in the United States and Healthcare in Europe. Thus, we have built sector-adjusted ESG and SDG portfolios to cope with the sector bias. This entails the reduction of the structural sector differences in SDG ratings. Interestingly, although the premium between high- and low-rated SDG stocks vanishes in the US case, the European case exhibits a strong positive premium. Finally, integrating SDG components in investment decisions will certainly be the standard in the years to come, but investors should be aware of the potential undesired bias implied by such an approach.TOPICS: ESG investing, portfolio construction, information providers/credit ratings, performance measurementKey Findings▪ From an average rating point of view, ESG and SDG sorted portfolios do not overlap much, so high ESG rated companies are not necessarily the best SDG contributors. This is also true the other way around.▪ SDG-driven strategies carry a structural sector bias in both the US and European cases.▪ Neutralizing the sector effect, the US case sees its SDG premium vanish while the European case keeps a significant positive one.