Making Waves in ESG Investing: An Empirical Study on the Performance of Ocean Portfolios

Abstract

Environmental, social and governance (ESG) investing is a growing field of practice and research, largely necessitated by the need to improve ecological and social welfare. Environmental sustainability has garnered much attention, even in comparison to the two other pillars of ESG. However, within environmental sustainability, ocean sustainability has not yet seen the same level of attention relative to its land-based counterpart. This study raises awareness of the benefits and barriers to sustainable ocean investing by building three distinct ocean impact portfolios using commonly practiced ESG investing strategies. The first portfolio integrates ocean sustainability information using a negative screening approach. The second portfolio uses a best-in-class approach. The third portfolio uses a tilt approach. Due to a distinct lack of ocean sustainability data from ESG data providers, all three portfolios consider ocean sustainability through our proprietary Ocean Impact Score (OIS), calculated based on industry-specific ocean-material sustainability metrics. The three portfolios are constructed on an investment universe of constituents in the MSCI ACWI as of 1st of January 2023, and an investment horizon of nine years from 2014 to 2022. The three portfolios' performances are measured against the performance of the MSCI ACWI as a benchmark. Our findings suggest that all three investments strategies can lead to combined financial and ocean impact outperformance of the market. Further, they suggest that the negative screening and best-in-class approaches can obtain positive abnormal returns for investors through the inclusion of ocean related ESG information in investment decision making. Finally, we find evidence that the tilt approach can reduce systematic risk of portfolios through the integration of ocean related ESG data. However, a definitive causal relationship between ocean related sustainability metrics and positive abnormal returns failed to be established.