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Revisiting ESG performance: do high scores translate to higher returns? A risk-adjusted analysis of S&P 500 portfolios

Paulo V. Carvalho et al.

Finance Research Letters2026https://doi.org/10.1016/j.frl.2025.109467article
AJG 2ABDC A
Weight
0.37

Abstract

The rise of ESG investing is often underpinned by the belief that sustainability enhances long-term financial performance. Research suggests ESG scores correlate with superior stock market returns, but the evidence remains mixed. We contribute to the debate by directly comparing the performance of top- and bottom-ranked ESG portfolios within the S&P 500 over the period 2005–2024. Using raw returns, we find that low ESG-rated portfolios consistently outperform their higher-rated counterparts in absolute terms. However, when accounting for risk, using risk-adjusted metrics — specifically the modified Sharpe ratio — no statistically significant differences emerge. These findings challenge prevailing assumptions about ESG investing and highlight the need for a more nuanced understanding of the trade-offs between sustainability and profitability in portfolio construction.

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https://doi.org/https://doi.org/10.1016/j.frl.2025.109467

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@article{paulo2026,
  title        = {{Revisiting ESG performance: do high scores translate to higher returns? A risk-adjusted analysis of S&P 500 portfolios}},
  author       = {Paulo V. Carvalho et al.},
  journal      = {Finance Research Letters},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1016/j.frl.2025.109467},
}

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Evidence weight

0.37

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.