Publication Type

PhD Dissertation

Version

publishedVersion

Publication Date

2-2023

Abstract

In this study, we focus on the Chinese A-share market, and particularly on the CSI 800 stocks. Our aim is to conduct a comparison analysis of the prominent environmental, social, and governance (ESG) rating agencies in an effort to reflect the growing importance of ESG investment, social responsibility, and sustainable development. We mainly use three mainstream rating agencies’ rating data (i.e., the China Securities Index [CSI], Wind, and SynTao Green Finance) to conduct descriptive statistics and comparative analysis. Furthermore, we conduct grouping tests on the ESG scores in the CSI 800 and across various sectors to explore their effectiveness in stock selection.

Next, to explore the return sources of the ESG factors in the time series, we utilize the Fama–French five-factor model for regression on their long-short portfolios. The portfolio analysis shows that the G-score can only be explained by these five factors to a low degree and that it has a significant alpha (intercept). This finding indicates that some elements of the G-score cannot be explained by the classical asset pricing factors, and may offer financial portfolios additional information. Therefore, we consider the G factor to be one of the most important criteria for stock selection. In the long-short portfolio regression analysis, we find the return source of the ESG factors to be significantly correlated with the size factor (SMB) and the profitability factor (RMW). As such, we then perform grouping tests by controlling for the SMB and RMW factors both separately and simultaneously.

Furthermore, from a practical perspective, we construct the CSI 800 ESG Smart Beta index enhancement strategy by conducting sufficient grouping tests on various screening methods (i.e., positive screening and negative screening). A major finding is that a portfolio constructed by negative screening will not worsen return performance, but instead it may offer more space for the investment manager to generate alpha. These empirical results may serve as useful references for future ESG investment research in the Chinese market. By extension, we further test the effectiveness of the CSI G-score’s bottom factors, by constructing the CSI G plus-score (with seven indicators underlying the CSI G-score) index enhancement strategy. Despite its limited effectiveness, it represents a valuable attempt in the current Chinese A-share market.

The main contributions of this study to empirical research are as follows. We compare three leading domestic ESG rating agencies in the Chinese market, expand the basic sample size, and include an analysis of CSI industry sectors while emphasizing corporate governance factors to provide a reference for further market research in China. Against the backdrop of multiple studies recognizing the importance of the governance factor, we empirically verify that the G factor has better return performance in the grouping tests. Especially in the area of excess return, the G factor offers additional information that cannot be explained by traditional asset pricing factors. Finally, we suggest new visions and directions for future ESG research.

Keywords

ESG factors, ESG rating, ESG investing, Portfolio analysis, Chinese A-share stock market

Degree Awarded

Doctor of Bus Admin (CKGSB)

Discipline

Asian Studies | Business Administration, Management, and Operations

Supervisor(s)

FU, Fangjian

First Page

1

Last Page

153

Publisher

Singapore Management University

City or Country

Singapore

Copyright Owner and License

Author

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