Scientific Portfolio AI- Generated Summary

This document explores the concept of ESG investing and its impact on expected returns. The author argues that pursuing virtue through ESG investing should result in a lower expected return, which is precisely the point of this type of investing. The author notes that it is false and irresponsible for asset managers to assert that investors who impose constraints on their investments should expect to do as well as those who do not.

The author also notes that while some investors believe that avoiding non-virtuous companies can lead to higher returns, this is not the case. Pursuing virtue should result in a lower expected return, as the goal is to make sinning companies sin less, not just to suffer in the stock market.

The author explains that the impact of ESG investing is not necessarily in the returns it generates, but rather in how it makes the world a better place. By encouraging sinning companies to sin less, ESG investing can have a positive impact on society and the environment.

The author acknowledges that empirical studies on the impact of ESG investing can be difficult to conduct, as there has been movement towards recognizing ESG characteristics, which can cause realized returns to move opposite in sign to expected future returns.

Overall, the author argues that ESG investing is about pursuing virtue and making the world a better place, rather than generating higher returns. While some investors may believe that avoiding non-virtuous companies can lead to higher returns, this is not the case. Instead, ESG investing should result in a lower expected return, as the goal is to encourage sinning companies to sin less.