Boosting ESG-Based Optimization With Asset Pricing Characteristics

18 Pages Posted: 14 Jul 2021 Last revised: 23 Jul 2021

See all articles by Guillaume Coqueret

Guillaume Coqueret

EMLYON Business School

Sascha Stiernegrip

Informed Portfolio Management AB

Christian Morgenstern

Imperial College London - Department of Infectious Disease Epidemiology

James Kelly

Independent

Johannes Frey-Skött

Informed Portfolio Management AB

Björn Österberg

Informed Portfolio Management AB

Date Written: June 30, 2021

Abstract

This article investigates the usefulness of combining traditional factors with ESG data when building optimal equity portfolios. Our contribution departs from the traditional literature by focusing on allocations designed to adjust benchmark policies. We allow compositions to be embedded in a general factor framework in which firm characteristics are the main drivers of the portfolio weights. In line with much of the literature, our results suggest that it is feasible to improve the ESG score of a portfolio without it being detrimental to its out-of-sample performance. However, pure sustainable attributes alone do not allow to fulfil this objective: they need to be boosted by non-ESG predictors to deliver their full potential.

Keywords: ESG, portfolio optimization, factor investing

JEL Classification: G11

Suggested Citation

Coqueret, Guillaume and Stiernegrip, Sascha and Morgenstern, Christian and Kelly, James and Frey-Skött, Johannes and Österberg, Björn, Boosting ESG-Based Optimization With Asset Pricing Characteristics (June 30, 2021). Available at SSRN: https://ssrn.com/abstract=3877242 or http://dx.doi.org/10.2139/ssrn.3877242

Guillaume Coqueret (Contact Author)

EMLYON Business School ( email )

23 Avenue Guy de Collongue
Ecully, 69132
France

Sascha Stiernegrip

Informed Portfolio Management AB

Mäster Samuelsgatan 6
Stockholm, 11144
Sweden

Christian Morgenstern

Imperial College London - Department of Infectious Disease Epidemiology ( email )

South Kensington Campus
London, SW7 2AZ
United Kingdom

James Kelly

Independent ( email )

Johannes Frey-Skött

Informed Portfolio Management AB ( email )

Mäster Samuelsgatan 6
Stockholm, 11144
Sweden

Björn Österberg

Informed Portfolio Management AB ( email )

Mäster Samuelsgatan 6
Stockholm, 11144
Sweden

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