Efficient SRI/ESG Portfolios

43 Pages Posted: 30 Jul 2019

See all articles by Christopher Geczy

Christopher Geczy

University of Pennsylvania - The Wharton School, Finance Department

John Guerard

McKinley Capital Management, LLC

Mikhail Samonov

Two Centuries Investments

Date Written: October 31, 2018

Abstract

Using an earnings forecasting model has been shown to be useful and highly statistically significant in U.S. stock selection. We find that incorporation of ESG criteria can enhance stockholder returns holding risk constant under reasonable assumptions. The novel approach here uses a normalization of ESG strengths and weaknesses ratings, applied in both robust simply-weighted and realistic optimized portfolio settings. In part, it confirms a now classical “no-cost” result for certain SRI/ESG investment constraints and, with Diversity, Human Rights, and Governance criteria, shows that SRI/ESG information can enhance portfolio returns. Thus, SRI/ESG investors may not have to expect lower portfolio returns and Sharpe Ratios.

Keywords: Socially Responsible Investing, ESG, Portfoio Selection

JEL Classification: G00

Suggested Citation

Geczy, Christopher Charles and Guerard, John and Samonov, Mikhail, Efficient SRI/ESG Portfolios (October 31, 2018). Available at SSRN: https://ssrn.com/abstract=3011644 or http://dx.doi.org/10.2139/ssrn.3011644

Christopher Charles Geczy

University of Pennsylvania - The Wharton School, Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
(215) 898-1698 (Phone)
(215) 898-6200 (Fax)

John Guerard (Contact Author)

McKinley Capital Management, LLC ( email )

3301 C St # 500
Anchorage, AK 99503
United States

Mikhail Samonov

Two Centuries Investments ( email )

38 benjamin rush lane
Princeton, NJ 08540
United States

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