Does ESG Impact Really Enhance Portfolio Profitability?

Cesarone, Francesco; Martino, Manuel L; Carleo, Alessandra

doi:10.3390/su14042050

Cited by 43 publications

(33 citation statements)

References 31 publications

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“…7 shows the price performance (obtained from the returns (9)) as well as the ESG scores for the tangent portfolios computed with mCVaR 0.99 optimization. For λ > 0, the price performance of these turnover constrained tangent portfolios is competitive with that obtained by the turnover unconstrained, α = 0.7 efficient frontier portfolios (compare 20 It is critical to emphasize that the tangent portfolios are identified using the efficient frontiers computed in (…”

Section: Esg-valued Tangent Portfoliosmentioning

confidence: 99%

“…Using (18), the ESG-valued tangent portfolio can be identified on any efficient frontier parameterized by (λ, α, t). 20 These ESG-valued tangent portfolios were identified for the (0.4% daily turnover constrained) portfolios computed in Section 4.1. Fig.…”

Section: Esg-valued Tangent Portfoliosmentioning

confidence: 99%

“…Asset weights in a long-only portfolio were then optimized in terms of return, mean variance and ESG value. In Cesarone et al [20], the ESG dimension is added as a hard constraint under mean-variance optimization with long-only positions solved numerically under data-driven scenarios. Their analysis is conducted on four investment universes: DJIA, Euro Stocxx 50, FTSE100, NASDAQ100 and S&P500.…”

Section: Introductionmentioning

confidence: 99%

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ESG-Valued Portfolio Optimization and Dynamic Asset Pricing

Lauria¹,

Lindquist²,

Mittnik³

et al. 2022

Preprint

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ESG ratings provide a quantitative measure for socially responsible investment. We present a unified framework for incorporating numeric ESG ratings into dynamic pricing theory. Specifically, we introduce an ESG-valued return that is a linearly constrained transformation of financial return and ESG score. This leads to a more complex portfolio optimization problem in a space governed by reward, risk and ESG score. The framework preserves the traditional risk aversion parameter and introduces an ESG affinity parameter. We apply this framework to develop ESG-valued: portfolio optimization; capital market line; risk measures; option pricing; and the computation of shadow riskless rates.

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Section: Esg-valued Tangent Portfoliosmentioning

confidence: 99%

Section: Esg-valued Tangent Portfoliosmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

ESG-Valued Portfolio Optimization and Dynamic Asset Pricing

Lauria¹,

Lindquist²,

Mittnik³

et al. 2022

Preprint

View full text Add to dashboard Cite

show abstract

“…An important implication of MPT is that the volatility of the portfolio of multiple assets generally would be smaller than those of individual assets combined through diversification. On the other hand, the exact impacts of ESG information on financial performance are still unclear, and the findings about the relationship between ESG information and investment performance are still inconclusive [3]. It has long been a debate as to whether socially responsible investing and ESG information have any effects on risk and return trade-off and importantly on diversification.…”

Section: Positive Implications Of Esg Investingmentioning

confidence: 99%

Perspective Chapter: The Environmental, Social, and Governance (ESG) Investment and Its Implications

Sarajoti¹,

Chatjuthamard²,

Papangkorn³

et al. 2023

Business, Management and Economics

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Investment management has been an important part in a long-term financial planning for investors around the world. Traditionally, investors aim to maximize the risk premium relative to the riskiness of the investment subjected to certain goals and constraints such as the time horizon, risk appetite, and consumption behavior. Recently, investors, both retail and institutional investors, have shown significant interests in sustainability especially on the environmental, social, and governance, which is often referred to as ESG investments. Studies on ESG investing are unable to reach consensus. We will review literature related to ESG investing in order to identify key limitations that obstruct advancements in this field. In particular, key limitations that we have identified involve the issues of data inconsistencies and the choice of benchmarks, among others. Furthermore, this chapter identifies areas for future research that address these limitations and thus should advance research in this field.

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“…The original methodology has been improved over the years and, among other modifications, additional criteria have been included to be considered in the selection of the stocks that make up the portfolio and that are important for investors, such as liquidity (Garcia, González-Bueno, Guijarro, Oliver, & Tamošiūnienė, 2020). Another important criterion is the socially responsible behaviour of the companies selected in the investment portfolio (Cesarone, Martino, & Carleo, 2022).…”

Section: Introductionmentioning

confidence: 99%

What is the cost of maximizing ESG performance in the portfolio selection strategy? The case of The Dow Jones Index average stocks

Martínez¹,

Gankova-Ivanova²,

González-Bueno³

et al. 2022

JESI

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Portfolio selection is one of the main financial topics. The original portfolio selection problem dealt with the trade-off between return and risk, measured as the mean returns and the variance, respectively. For investors more variables other than return and risk are considered to select the stocks to be included in the portfolio. Nowadays, many investors include corporate social responsibility as one eligibility criterion. Additionally, other return and risk measures are being employed. All of this, together with further constraints such as portfolio cardinality, which mirror real-world demands by investors, have made the multicriteria portfolio selection problem to be NP-hard. To solve this problem, heuristics such as the non-dominated sorting genetic algorithm II have been developed. The aim of this paper is to analyse the trade-off between return, risk and corporate social responsibility. To this end, we construct pareto efficient portfolios using a fuzzy multicriteria portfolio selection model with real-world constraints. The model is applied on a set of 28 stocks which are constituents of the Dow Jones Industrial Average stock index. The analysis shows that portfolios scoring higher in corporate social responsibility obtain lower returns. As of the risk, the riskier portfolios are those with extreme (high or low) corporate social responsibility scores. Finally, applying the proposed portfolio selection methodology, it is possible to build investment portfolios that dominate the benchmark. That is, socially responsible portfolios, measured by ESG scores, must not necessarily be penalized in terms of return or risk.

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Does ESG Impact Really Enhance Portfolio Profitability?

Cited by 43 publications

References 31 publications

ESG-Valued Portfolio Optimization and Dynamic Asset Pricing

ESG-Valued Portfolio Optimization and Dynamic Asset Pricing

Perspective Chapter: The Environmental, Social, and Governance (ESG) Investment and Its Implications

What is the cost of maximizing ESG performance in the portfolio selection strategy? The case of The Dow Jones Index average stocks

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