The ESG-efficient frontier under ESG rating uncertainty

Messaoud Chibane and Mathieu Joubrel

Finance Research Letters, 2024, vol. 67, issue PB

Abstract: The impact of ESG score uncertainty on the risk-return profile of socially responsible optimal portfolios is analyzed. Focusing on the 109 largest French company stock prices between 2021 and 2024, uncertainty about ESG score is measured through the lens of investors’ assessment rather than from ESG rating agencies. The efficient frontier is generalized by introducing the degree of investors’ social responsibility to the classic Markowitz approach. Our results show that taking into account ESG uncertainty substantially degrades the trade-off between portfolio return and volatility for highly responsible and low-risk portfolios.

Keywords: Efficient Frontier; ESG consensus; ESG Uncertainty; Impact Investor (search for similar items in EconPapers)
JEL-codes: E31 E58 G12 G13 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pb:s1544612324009115

DOI: 10.1016/j.frl.2024.105881

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