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ESG information integration into portfolio optimisation
Journal of Risk Management in Financial Institutions,
16
(2),
158-179
(2023)
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
The full article is available to subscribers to the journal.
Author's Biography
Haoming Cao holds a Master of Mathematics degree in Actuarial Science from the University of Waterloo. Her Master's Research Paper was written in the field of global climate change risks, under the supervision of Tony Wirjanto. She is currently an Associate of FC Actuarial Services at RSM Canada.
Tony S. Wirjanto is a professor at the School of Accounting & Finance as well as the Department of Statistics & Actuarial Science, both at the University of Waterloo. He is also cross-appointed to the Cheriton School of Computer Science at the University of Waterloo. His main research areas include functional time series with applications in quantitative finance, portfolio optimisation and global climate change risks in finance and actuarial science.
Citation
Cao, Haoming and Wirjanto, Tony S. (2023, August 1). ESG information integration into portfolio optimisation. In the Journal of Risk Management in Financial Institutions, Volume 16, Issue 2. https://doi.org/10.69554/ZFJU5571.
© Henry Stewart
Publications LLP
Publications LLP