The Challenge of Disparities in ESG Ratings

by Bruce I. Jacobs and Kenneth N. Levy, Journal of Impact and ESG Investing, Spring 2022: Environmental, social, and governance (ESG) considerations play an increasingly important role in investment decisions. Vendors of ESG data, however, lack a common framework for creating ESG ratings. As a result,... their ratings show substantial disparities for the same company, making it difficult to assess whether the ratings are truly aligned with companies’ ESG performance. This article highlights the nature and sources of the ESG rating disparities and urges investors to be aware of them. Despite noisy ESG ratings, disentangling may be suitable for assessing the efficacy of multidimensional ESG data in the presence of other characteristics impacting stock returns.

Experts Win Top Bernstein Fabozzi/Jacobs Levy Award for Paper on Inflation

by Rob Kozlowski, Pensions & Investments, February 2, 2022: “The Best Strategies for Inflationary Times” by Henry Neville, Teun Draaisma, Ben Funnell, Campbell R. Harvey, and Otto Van Hemert won Best Article in the 23rd Annual Bernstein Fabozzi/Jacobs Levy Awards, as voted by subscribers to the Journal of Portfolio Management... The article examines newly resurgent inflationary risks for portfolio managers based on the authors’ historical analysis of active and passive strategies across multiple asset classes and markets over the past 95 years. “This timely guidance is welcomed as portfolio managers face the unfamiliar territory of high inflation,” said Bruce Jacobs, principal and co-founder of Jacobs Levy Equity Management. “The authors’ analysis of the history of high inflation episodes provides a wealth of information and insights.”

Research on ESG Returns Wins Jacobs Levy Center Prize

by James Comtois, Pensions & Investments, November 1, 2021: The Wharton School’s Jacobs Levy Equity Management Center for Quantitative Financial Research awarded its annual Best Research Paper Prize to Lubos Pastor, Robert Stambaugh, and Lucian Taylor for their paper, “Dissecting Green Returns,”... which attributed the recent success of green assets to increasing environmental concerns and cautions that the premium could diminish if environmental concerns ease. “The implications are important for the investment community while it asserts that green stocks have performed better than brown stocks (environmentally unfriendly stocks) over the last decade, they may now be (too) pricey, so investors should not expect that they will provide the same premium going forward,” said Bruce I. Jacobs, chair of the Jacobs Levy Center’s Advisory Board. Jacobs added, “For Wharton and the Center, this paper is an example of the quality of the papers produced by the faculty at the school. Not only is this good empirical research, but it’s also very topical.”