Optimal Strategies for ESG Portfolios

48 Pages Posted: 20 Apr 2020

See all articles by Fabio Alessandrini

Fabio Alessandrini

University of Lausanne; Banque Cantonale Vaudoise

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute

Date Written: April 16, 2020

Abstract

In a previous paper (Alessandrini and Jondeau, 2020), we demonstrate that in the last decade, investing according to screening based on environmental, social, and governance (ESG) criteria would have allowed investors to considerably improve the ESG quality of their portfolio without deteriorating its financial performance. However, a drawback of such a screening process is that it possibly generates undesirable regional, sectoral, and risk factor exposures. In this paper, we propose an investment strategy that maximizes the ESG quality of the portfolio while maintaining regional, sectoral, and risk factor exposures within stated limits. We provide evidence that such a portfolio would have produced a risk-adjusted performance at least as high as the standard MSCI benchmark for a wide range of ESG criteria and regions over the 2007-2018 investment period.

Suggested Citation

Alessandrini, Fabio and Jondeau, Eric, Optimal Strategies for ESG Portfolios (April 16, 2020). Swiss Finance Institute Research Paper No. 20-21, Available at SSRN: https://ssrn.com/abstract=3578830 or http://dx.doi.org/10.2139/ssrn.3578830

Fabio Alessandrini

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Banque Cantonale Vaudoise ( email )

Place St-François 14
Lausanne
United States

Eric Jondeau (Contact Author)

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://www.hec.unil.ch/ejondeau/

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