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Performance evaluation of ESG optimized portfolios versus minimum variance portfolios: a predictive approach using S&P 500 companies for 2021 and 2022
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Resumo(s)
This project explores the creation of an ESG (Environmental, Social, and Governance) portfolio
aimed at maximizing sustainability while comparing it to a minimum variance portfolio derived
from CAPM and GARCH models. The study reveals a nuanced relationship between ESG factors
and portfolio performance.
While ESG criteria alone show no definitive link to return or risk at the individual asset level,
portfolio-level analysis within the efficient frontier highlights that portfolios with higher Sharpe
ratios often have lower ESG levels. This suggests that traditional financial metrics, such as risk
and return, outweigh ESG factors in driving performance within efficient portfolios.
An alternative methodology for integrating ESG into portfolio optimization is proposed. Instead
of maximizing ESG, the efficient frontier is used to identify portfolios that meet ESG thresholds
while maintaining efficient risk-return trade-offs. This balanced approach demonstrates that
sustainability and financial performance can coexist without compromising optimal returns.
The findings emphasize that ESG investing provides sustainability benefits but may not always
produce the most efficient portfolios. A combination of traditional financial metrics and ESG
considerations is essential for achieving optimal outcomes.
Descrição
Palavras-chave
ESG Efficient frontier Portfolio optimization Risk-adjusted returns