Balancing Returns and Responsibility: Markowitz Optimization for ESG-Integrated Portfolios in Morocco

Hassan Oukhouya (), Afaf El Rhiouane (), Raby Guerbaz (), Tarek Zari () and Khalid El Himdi ()
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Hassan Oukhouya: University Mohammed First
Afaf El Rhiouane: Mohammed V University in Rabat
Raby Guerbaz: Hassan II University in Casablanca
Tarek Zari: Hassan II University in Casablanca
Khalid El Himdi: Mohammed V University in Rabat

Computational Economics, 2025, vol. 66, issue 5, No 22, 4219-4244

Abstract: Abstract Our study aims to assess the impact of integrating environmental, social, and governance (ESG) criteria into the portfolio optimization process in Morocco, providing practical information for socially responsible (SR) investors through the use of two distinct models. Based on Markowitz’s mean-variance (MV) theory, the first model aims to define the optimal allocations for the entire set of companies comprising the Moroccan portfolio. The second model adopts a multicriteria approach by considering a constraint that sets a minimum ESG score that the investor is willing to accept. The construction of the optimized portfolio in these two models involves a preliminary filtering based on the Sharpe ratio applied to a set of 69 companies listed on the Casablanca stock exchange (CSE). A comprehensive comparison of the results obtained by each model reveals that SR portfolios in Morocco do not outperform their conventional counterparts. However, attractive opportunities emerge, allowing for the creation of portfolios that strike a balance between returns and risk while maintaining significant ESG scores. It is worth noting that stricter choices regarding ESG scores require investors to accept higher levels of risk for higher returns or to settle for lower returns for reduced risk. These results underscore that, in the Moroccan context, SR portfolio optimization remains a relatively new exploration, as previous studies have primarily focused on socially responsible investing (SRI) or SR funds. Our approach brings an original contribution to this field, encouraging further exploration by other researchers to include different types of assets or explore alternative optimization models.

Keywords: ESG criteria; Moroccan Portfolio optimization; Markowitz’s mean-variance (MV) theory; Multicriteria approach; Socially responsible investing (SRI) (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10614-024-10834-8

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