Truvalue Labs Big Data Yields Significant Alpha When Paired with MSCI ESG Ratings, Harvard’s Serafeim Finds

Blog October 24, 2018
Serafeim chart

Chart of ESG alpha from Serafeim study

ESG investing presents opportunities for alpha, and Truvalue Labs data is a key building block of additive value, according to a new study from Harvard Business School Professor George Serafeim that found “significant positive alpha of about 4-5% annually.”

Serafeim’s study “Public Sentiment and the Price of Corporate Sustainability,” shows that significant positive alpha can be unlocked using a combination of Truvalue Labs’ big data and traditional ESG ratings from MSCI.

To learn more about the Serafeim study, here’s a summary of the results. Or click here for the full study.

Here’s what industry experts are saying:

  • “I was impressed with Truvalue Labs’ ESG data derived from artificial intelligence,” Serafeim said. “It is an important step forward for the industry.”
  • Dr. Robert Eccles, Visiting Professor of Management Practice at the  Saïd Business School, University of Oxford, called Serafeim’s work “an important new Working Paper”  in an email note.  Eccles, the founding Chairman of the Sustainability Accounting Standards Board, is a member of the board of Truvalue Labs.
  • “This research highlights the next stage in the evolution of ESG data,” said Mark McDivitt, head of ESG Solutions at State Street Global Exchange. “It shows the power of combining traditional ratings with new, innovative datasets to fully understand the contribution of intangible value to firm valuations, which is a material capability boost for our ESG analytics platform, ESGX ® .”

Serafeim’s results echo a recent study showing alpha from Truvalue Labs data, “Finding Alpha from ESG2.0™ Factors Beyond the U.S.” by Dr. Stephen Malinak, Chief Data and Analytics Officer for Truvalue Labs.

That study introduced a new “ESG Activity Signal” for which the top quintile of companies ranked by the factor beat the ACWX index by 7.9 percent annually. In English-speaking countries, the strategy produced 9.8 percent outperformance, and in non-English-speaking countries, 6.4 percent. The ESG Activity Signal showed low correlation to typical smart beta factors, enabling top quintile performance of 9.0 percent and a quintile spread of 9.8 percent in combination with typical smart beta factors.