ESG information integration into portfolio optimisation

Haoming Cao and Tony S. Wirjanto
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Haoming Cao: Master of Mathematics degree student, University of Waterloo, Canada
Tony S. Wirjanto: Professor, University of Waterloo, Canada

Journal of Risk Management in Financial Institutions, 2023, vol. 16, issue 2, 158-179

Abstract: A growing number of investors in recent years has focused on environmental, social and governance (ESG) factors in carrying out investment activities and the COVID-19 pandemic has only driven such trends of ESG investing at an accelerated rate. Many studies have examined the relationship between ESG scores and corporate financial performance, along with the effectiveness of ESG portfolios. This paper discusses various approaches to incorporate ESG factors into a portfolio optimisation and critically compares and contrasts the efficacy of these approaches on the Dow Jones Industrial Average constituents. It finds that thematic investing appears to be the best performer. In addition, it is also found that there is no evidence that ESG portfolios underperform the market.

Keywords: ESG; portfolio optimisation; best-in-class selection; thematic investing; ESG integration; Dow Jones Industrial Average; hybrid strategies; Sustainalytics (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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