Gautam Dhingra

As Environmental, Social, and Governance (ESG) investing soars in popularity, it brings urgency to the need to know whether it is an opportunity to enhance investment returns or a constraint on maximizing returns. High Pointe is in a unique position to contribute to this debate because its Franchise Quality Score methodology has put it at the forefront for observing the impact of ESG and other intangible factors on stock valuations over the last two decades. In our research paper we test the efficacy of ten specific ESG factors. Our conclusion is that investing using simplistic ESG criteria is neither likely to add value nor likely to incur a performance penalty. ESG factors do help capture the quality dimension of individual stocks. However, the quality dimension needs to be evaluated along with the growth and valuation dimension to identify undervalued stocks. Our experience proves that a holistic integration of ESG factors can help an investor outperform the broad market.