Is ESG a Factor?

Key Points

  • Increasingly, investors are asking if ESG is a factor. We answer this question using the criteria set forth by our Research Affiliates colleagues in their 2016 Graham and Dodd Scroll–winning article, “Will Your Factor Deliver? An Examination of Factor Robustness and Implementation Costs.” We conclude that ESG is not a factor.
  • We do believe, however, that ESG could be a powerful theme as new owners of capital—in particular, women and millennials—prioritize ESG in their portfolios over the next two decades. Progress in aligning definitions of “good” and “bad” ESG companies will also enhance the ability of the ESG theme to deliver positive investor outcomes.
  • We conclude that ESG does not need to be a factor for investors to achieve their ESG and performance goals.


As we hit the halfway point of this remarkable year, the health of our planet, the well-being of our communities, and the necessity for meaningful societal change are all top of mind and assuming a greater sense of urgency. Accordingly, many investors desire to take personal action by incorporating environmental, social, and governance (ESG) considerations into their investment portfolios. Unfortunately, they are confronted by a confusing ESG landscape with conflicting claims—similar to the multitude of competing health care studies. This confusion may be slowing down their good intentions. As a factor index provider with ESG offerings, we attempt to answer the question “Is ESG a factor?” by synthesizing what we, and our colleagues, have discovered over the years.

”Can drinking red wine daily stave off heart disease? A newly released study answers that very question. We’ll cover it right after this commercial break.” Does this teaser sound familiar from your favorite morning television or radio show? Does this attention-grabber peak your interest to wait a few minutes, bear the commercials, and hear the story? The media has a natural inclination to use science to engage audiences. Consequently, we’re bombarded with new studies, especially as they relate to our health, a topic of interest to everyone and, of course, top of mind today.

The findings may entertain, but do they inform? Nagler (2014) finds that contradictory scientific claims on red wine, coffee, fish, and vitamins, all touted by the media, led to substantial confusion on the part of consumers. Indeed, the claims led to such confusion that many consumers grew skeptical of even vetted health advice such as exercising and eating fruits and vegetables. Ironically, learning more about nutrition via competing claims led to more confusion, lack of trust, and less likely adoption of better eating and exercising habits.