How to Improve Investment Portfolio of ESG Companies under Constrains
DOI:
https://doi.org/10.61173/44vwff46Keywords:
Markowitz model, exponential model, Excel Sharpe ratio, covariance, efficient frontier, optimal port-folioAbstract
This paper explores the construction of investment portfolios based on ESG (Environmental, Social, Governance) factors using Markowitz’s portfolio theory. We selected 50 companies based on MSCI ESG ratings and used 2023 stock price data to construct portfolios of various sizes (10, 30, and 50 stocks). Through Excel tools, we calculated covariance matrices, simulated stock allocations, and analyzed weekly returns for each portfolio. We optimized risk-adjusted returns and employed the Sharpe ratio to identify the optimal portfolio. Our findings demonstrate the positive impact of ESG factors on long-term portfolio stability and highlight the importance of Markowitz’s model in financial risk management. This study provides practical insights and a fresh perspective on optimizing ESG-based investment decisions in the current market environment.
References
[1] Portfolio Selection, Harry Markowitz, The Journal of Finance, Vol. 7, No. 1. (Mar., 1952), pp. 77-91.
[2] Responsible investing: The ESG- efficient frontier, Pederson, L.H., Fitzgibbons, S., & Pomorski, L.(2021).Journal of financial economics, 142 (2), 572-597.
[3] Sustainable investing with ESG rating uncertainty, Doron Avramov, Si Cheng, Abraham Lioui, Andrea Tarelli, Journal of financial economics (2021).
[4] Optimizing Portfolio with Two-Sided Transactions and Lending: A Reinforcement Learning Framework, Ali Habibnia, Mahdi Soltanzadeh.
[5] Unpackaging ESG: Evidence from 401(k)Investment, Jiaxing Tian, Jiahong Shi(2023).Available at SSRN.
Downloads
Published
Issue
Section
License
Copyright (c) 2025 by the authors.
This work is licensed under a Creative Commons Attribution 4.0 International License.
