Combining ESG Risk and Economic Moat

esg risk economic moat

This report looks at potential synergies between Sustainalytics’ ESG Risk Ratings and Morningstar’s Economic Moat Rating.

As a part of our research, we constructed a back-testable investment strategy and portfolio by segmenting stocks with low ESG risk and a wide moat. While both metrics worked independently, they performed exceptionally well in combination. 

Key highlights found in the report:

  • Overall, our research shows that economic moat and ESG risk can be combined to create investment strategies that generate value both in terms of returns and portfolio risks. 
  • Looking at nine portfolios that we constructed based on intersections of Economic Moat and ESG Risk characteristics, we found some striking average return and risk patterns.
  • To test whether there is value in overlaying an ESG signal on top of a moat signal (or vice versa), we looked at two timeframes: the COVID-19 sell-off and subsequent market recover, and a 3 year time period.

Download the full report for details on these findings and other insights. 

Download the Report