Does ESG Impact Really Enhance Portfolio Profitability?
TLDR
In this article , a multi-objective optimization model for portfolio selection is proposed, where the authors add to the classical mean-variance analysis a third non-financial goal represented by the ESG scores.Abstract:
Over the last few decades, growing attention to the topic of social responsibility has affected financial markets and institutional authorities. Indeed, recent environmental, social, and financial crises have inevitably led regulators and investors to take into account the sustainable investing issue; however, the question of how Environmental, Social, and Governance (ESG) criteria impact financial portfolio performances is still open. In this work, we examine a multi-objective optimization model for portfolio selection, where we add to the classical Mean-Variance analysis a third non-financial goal represented by the ESG scores. The resulting optimization problem, formulated as a convex quadratic programming, consists of minimizing the portfolio variance with parametric lower bounds on the levels of the portfolio expected return and ESG. We provide here an extensive empirical analysis on five datasets involving real-world capital market indexes from major stock markets. Our empirical findings typically reveal the presence of two behavioral patterns for the 16 Mean-Variance-ESG portfolios analyzed. Indeed, over the last fifteen years we can distinguish two non-overlapping time windows on which the inclusion of portfolio ESG targets leads to different regimes in terms of portfolio profitability. Furthermore, on the most recent time window, we observe that, for the US markets, imposing a high ESG target tends to select portfolios that show better financial performances than other strategies, whereas for the European markets the ESG constraint does not seem to improve the portfolio profitability. read more
Citations
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Journal ArticleDOI
Relationship between the Cost of Capital and Environmental, Social, and Governance Scores: Evidence from Latin America
Ana Gabriela Ramirez,Julián Monsalve,Juan David González-Ruiz,Paula Almonacid,Alejandro Milcíades Peña +4 more
TL;DR: In this article , the authors analyzed the relationship between ESG scores and the cost of capital of firms with headquarters in LatAm using a data set that includes 606 observations corresponding to information about 202 firms from 2017 to 2019.
Journal ArticleDOI
Environmental Sustainability Commitment and Access to Finance by Small and Medium Enterprises: The Role of Financial Performance and Corporate Governance
TL;DR: In this paper , the authors examined the role of corporate governance on the relationship between environmental sustainability commitment and access to finance and whether this relationship was mediated by financial performance, and the results showed that corporate governance positively moderated the link between environmental sustainable commitment and the access of finance.
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The Environmental, Social, and Governance (ESG) Investment and Its Implications
TL;DR: In this paper , the authors review literature related to ESG investing in order to identify key limitations that obstruct advancements in this field and identify areas for future research that address these limitations.
Journal ArticleDOI
A bilevel approach to ESG multi-portfolio selection
TL;DR: In this article , the authors rely on bilevel programming to model the problem of financial service providers that, in order to meet stakeholders' demands and regulatory requirements, aim at incentivizing accounts' holders to construct ESG-oriented portfolios so that the overall ESG impact of the firm is optimized, while the preferences of accounts' owners are still satisfied.
Journal ArticleDOI
Modelo Media-Varianza y criterios ASG: de Markowitz al portafolio socialmente responsable
TL;DR: This paper present an enfoque de selección de portafolios óptimos socialmente responsables, a través of la incorporación of los criterios ASG (ambiente, social, and buen gobierno) in the modelo media-varianza (MV) de Markowitz.
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