Financial Quality Metrics and ESG Factor Interactions in Equity Markets

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Summary

The article examines the relationship between quality factors and ESG factors, as well as the corresponding multifactor combinations across six-year monthly rebalanced in-sample backtests on the Russell 1000 Index, Russell 2000 Index, and MSCI EAFE Index. The data indicates that ESG and financial quality factors are uncorrelated, suggesting that higher-rated ESG companies are not always higher-quality companies.