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How to improve the ESG profile of portfolios while keeping a similar risk-adjusted return
Journal of Risk Management in Financial Institutions,
15
(1),
51-71
(2021)
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
The full article is available to subscribers to the journal.
Author's Biography
Antoine Kopp joined Pictet Asset Management in 2020 in the Multi Asset department. He holds an MSc in Engineering from ETH Zurich and a BSc in the same field from EPFL.
Dominic Barber joined Pictet Asset Management in 2020 and is a member the Fixed Income Investment Strategy & Solutions Team. He holds a BA from the University of Bristol and an MSc from CASS Business School.
Rémy Cottet joined Pictet in 2014. He is a Senior Quantitative Analyst in the Investment Solutions team and held a similar position in the Quantitative Absolute Return team. Before joining Pictet, Rémy worked for AHL, Man Investments for 7 years as a Senior Quantitative Analyst before becoming Head of the Strategic Research team. He also held a lecturer position in Economics and Business Statistics at the University of Sydney. Rémy holds a PhD in Econometrics from the University of Sydney and a Bachelor degree in Mathematics from the University of Geneva.
Gabriele Susinno joined Pictet in 2015 and is a Senior Product Specialist for the Quantitative Equities team. Before joining Pictet Asset Management, Gabriele spent the last eight years at Unigestion where he was heading the Quantitative Research and Risk Management group at the Funds of Hedge Funds Unit. Previously, he worked at Banque Cantonale Vaudoise as Head of Market Risk Management. Gabriele started his career in finance in 1997 and gained various professional experiences working as a quantitative analyst at the London Business School Software House (MONIS), responsible for the ALM modelling at INA - Generali, and as a senior advisor for Institutional Investors at Capital Management Advisors/Deloitte. Gabriele holds a Master’s Degree in Astrophysics and a PhD in Experimental Particle Physics from the University of Geneva and CERN.
Citation
Kopp, Antoine, Barber, Dominic, Cottet, Rémy and Susinno, Gabriele (2021, December 1). How to improve the ESG profile of portfolios while keeping a similar risk-adjusted return. In the Journal of Risk Management in Financial Institutions, Volume 15, Issue 1. https://doi.org/10.69554/JISS7490.
© Henry Stewart
Publications LLP
Publications LLP