In this paper, I examine the effects of sustainability on portfolio management, analysing the strategies to rebalance a portfolio composed of 48 green stocks that align with the investment perspective of asset management firms. The study begins by exploring the growing importance of Environmental, Social, and Governance (ESG) criteria in the investment landscape, emphasizing the intention of asset managers to include them in their strategies. By constructing a portfolio exclusively of stocks with high ESG score, the research aims to assess performance metrics and volatility of different strategies compared to the market. The methodology involves selecting an existing portfolio of 48 stocks that incorporate ESG criteria, followed by an analysis of their financial performance and risk profiles. The paper also delves into various rebalancing strategies, including minimum variance and ESG weighted portfolios, to maintain the portfolio’s alignment with sustainability goals while optimizing returns. Results indicate that green portfolios can achieve competitive returns while contributing positively to environmental and social outcomes. However, the study also identifies challenges such as limited stock selection and difficulty to isolate the effect of greenness. This research contributes to the understanding of sustainable investing by providing empirical evidence on the efficacy of green portfolios and offering practical insights into effective rebalancing strategies. It highlights the potential of green investing to meet the dual objectives of financial gain and positive environmental impact, thus supporting the case for broader adoption of ESG principles in asset management.
- Mestrado em Finanças (mestrado internacional)
Doing well by doing good: ESG portfolio optimization and performance
Ferrari, F. (Student). 2 Jul 2024
Student thesis: Master's Thesis