How to improve the ESG profile of portfolios while keeping a similar risk-adjusted return

Antoine Kopp, Dominic Barber, Rémy Cottet and Gabriele Susinno
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Antoine Kopp: Pictet Asset Management
Dominic Barber: Pictet Asset Management
Rémy Cottet: Pictet Asset Management
Gabriele Susinno: Pictet Asset Management

Journal of Risk Management in Financial Institutions, 2021, vol. 15, issue 1, 51-71

Abstract: This paper identifies the potential to improve ESG credentials of a given reference portfolio whilst broadly maintaining risk-adjusted return characteristics, hence anchoring the portfolio to a better ESG profile. ‘Improving’ in this case means allocating a higher weight to better ESG stocks according to the variables employed. Using different MSCI benchmarks as reference portfolios, the research shines light on interesting subsector dynamics in the ESG-tilting process. Namely, Banks and Pharmaceuticals are replaced by Insurers and Real Estate Investment Trusts, in addition to Healthcare providers. The paper provides significant findings for investment managers in the context of ever-increasing pressure to ‘do good whilst doing well’. The opinions expressed in this paper are solely those of the authors.

Keywords: ESG; portfolio construction; risk-adjusted return; sustainable investing; socially responsible investing; convex optimisation (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2021
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