ESG ratings and news sentiment data

New research from Ravenpack shows how ESG strategies can be enhanced with the use of news sentiment data.

Ravenpack made the following findings in their report:

• ESG ratings used for portfolio screening provide downside risk mitigation and a positive, albeit modest, increase in performance with respect to fully random portfolios

• The performance and downside protection of ESG-screened portfolios can be enhanced by adding a sentiment overlay

• The price reaction of ESG-related negative events leads to fast momentum signals followed by slow reversal signals

• A double overlay of broad sentiment and ESG reversal signals improves alpha generation by up to 300 basis points and reduces the maximum drawdown by a factor of 2 compared to the random market portfolio