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What is the impact of an ESG filter on portfolio performance? Evidence for various investment strategies.

Jamil, Yasmine
(2021)

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Supervisors
D'Hondt, Catherine ; Vrins, Frédéric
Faculty
Louvain School of Management
Degree label
Master [120] : ingénieur de gestion, à finalité spécialisée
Abstract
Initiated by religious movements a few decades ago, sustainable finance is now a key concern for most financial institutions and any investors. It is now widely admitted that investors, in contrast with the standard Markowitz theory, do not only care about risk and return. Non-financial criteria such as environmental issues or ethics strongly impact their investment decisions. In this work, we analyze the influence of filtering out stocks failing to display high ESG score on the performance of popular portfolio strategies including equally weighted, minimum-variance, tangent and asset-risk parity portfolios. We find that, when no significance test is computed, the portfolios that perform the best are the portfolios following the minimum variance strategy combined with a consideration of ESG scores without any threshold. Whereas, when a significance test is calculated the link between ESG score and its impact on diversification strategy is invalid. This suggests that there is no evidence of a relationship between ESG scores and financial performance.