The Expected Returns of ESG Excluded Stocks. Shocks to Firms Costs of Capital? Evidence From the World’s Largest Fund

Erika Christie Berle, Wangwei He, Bernt Arne Ødegaard

2023 | Academic | Cost of Capital, Portfolio Construction, Risk & Performance

We investigate the link between ESG-based portfolio exclusions and the expected returns of excluded firms. The exclusions of Norway's 'Oil Fund,' the world's largest SWF, provide a sample of stocks that face widespread exclusions by institutional investors. The portfolio of excluded firms have significantly superior performance (alpha) of about 5%.