Applying ESG Strategies to Portfolio Optimisation

Robert Krizo & Mikkel Kjerside Lundsgaard

Studenteropgave: Kandidatafhandlinger

Abstract

As global consciousness expands, an ever-growing recognition of the pressing environmental and social challenges, ranging from the perils of climate change to the persistent violation of human rights, pervades our collective awareness. In response, Environment, Social, and Governance (ESG), while not a new phenomenon, has become a key focus area for many businesses as a way to communicate and integrate sustainability concerns in their daily conduct. However, emerging regulatory changes have shown that the need for ESG is becoming much more formalised, and there is a move from voluntary to mandatory reporting. This requires companies to target their efforts and narrow in on assessing the financial impact of their actions, that is, to consider what is material to their business. Accordingly, ESG is becoming a risk management tool rather than a phrase to describe the desire to change the world for the better. In light of this dynamic context, the thesis aims to investigate ESG investment strategies which cater to investors with varying levels of sustainability focus. Hereby, the thesis accounts for specific investor preferences used to formalise portfolio selection processes. Notably, the thesis finds that for a sustainable investor, imposing constraints leads to a trade-off whereby a portfolio exhibits a performance that is generally below the benchmark but satisfies broader sustainability targets. As underperformance is inconsistent, ESG portfolios can offer attractive investment alternatives, which in some cases provide better resilience to downturns.

UddannelserCand.merc.fin Finance and Investments, (Kandidatuddannelse) Afsluttende afhandling
SprogEngelsk
Udgivelsesdato2023
Antal sider112
VejledereMarcel Fischer