How to Improve the ESG Profile of Portfolios While Keeping a Similar Risk-Adjusted Return

Journal of Risk Management in Financial Institutions, Volume 15 Number 1 (2022)

21 Pages Posted: 18 Apr 2022

See all articles by Dominic Barber

Dominic Barber

Pictet Asset Management

Antoine Kopp

ETH Zürich

Remy Cottet

University of New South Wales (UNSW)

Gabriele Susinno

Pictet Asset Management

Date Written: February 1, 2022

Abstract

This paper identifies the potential to improve ESG credentials of a given reference portfolio whilst broadly maintaining risk-adjusted return characteristics, hence anchoring the portfolio to a better ESG profile. ‘Improving’ in this case means allocating a higher weight to better ESG stocks according to the variables employed. Using different MSCI benchmarks as reference portfolios, the research shines light on interesting subsector dynamics in the ESG-tilting process.The paper provides significant findings for investment managers in the context of ever-increasing pressure to ‘do good whilst doing well’.
The opinions expressed in this paper are solely those of the authors.

Keywords: ESG, portfolio construction, risk-adjusted return, sustainable investing, socially responsible investing, convex optimisation

JEL Classification: C00,Q00,O00

Suggested Citation

Barber, Dominic and Kopp, Antoine and Cottet, Remy and Susinno, Gabriele, How to Improve the ESG Profile of Portfolios While Keeping a Similar Risk-Adjusted Return (February 1, 2022). Journal of Risk Management in Financial Institutions, Volume 15 Number 1 (2022), Available at SSRN: https://ssrn.com/abstract=4076841

Dominic Barber

Pictet Asset Management ( email )

Geneva
Switzerland

Antoine Kopp

ETH Zürich ( email )

LEE G104
Leonhardstrasse 21
Zurich
Switzerland

Remy Cottet

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Gabriele Susinno (Contact Author)

Pictet Asset Management ( email )

Route des Acacias 60
Geneva, 1211
Switzerland

HOME PAGE: http://www.am.pictet/

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