Is the ESG portfolio less turbulent than a market benchmark portfolio?

Ouchen, Abdessamad

doi:10.1057/s41283-021-00077-4

Cited by 30 publications

(22 citation statements)

References 45 publications

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“…This finding is even clearer for the estimates related to the pandemic period. The volatility analysis shows that the COVID-19 pandemic increased the contagion risk, but the sustainable funds had a superior ability to face this type of risk, as was already reported by Ouchen [35] for an ESG portfolio.…”

Section: Discussionsupporting

confidence: 58%

“…For example, Biasin et al [32]-one of the last studies before the pandemic-highlight the benefits of social impact investmentbased portfolios. Abate et al [33], using a sample of European funds, and Das et al [34] showed that socially responsible mutual funds outperformed conventional funds and Ouchen [35] demonstrated that the ESG portfolio MSCI USA ESG Select was "less turbulent". Meanwhile, Becchetti and Ciciretti [36], analyzing the volatility issue in greater depth, found that individual socially responsible stocks are significantly less risky when controlling for conditional heteroskedasticity.…”

Section: Related Literaturementioning

confidence: 99%

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Sustainable Finance and COVID-19: The Reaction of ESG Funds to the 2020 Crisis

Pisani

Russo

2021

Sustainability

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We investigated the financial performance of a sample of sustainable investment funds in terms of returns, volatility, and contagion risk during the financial crisis caused by the COVID-19 pandemic. In order to conduct a more reliable analysis, we considered a homogenous sample composed of 30 funds declaring the same benchmark (the MSCI Europe index). The Morningstar Sustainability ESG rating was used to determine the level of sustainability of each fund. Both the GARCH models and the event study suggest that funds with a higher ESG rating were able to outperform other funds during the COVID-19 period. These funds had a greater level of resilience and exhibited a lower level of risk contagion during the pandemic. These instruments appear to assume the role of risk protection and should be considered a means of both promoting sustainable growth and minimizing portfolio risk.

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Section: Discussionsupporting

confidence: 58%

Section: Related Literaturementioning

confidence: 99%

Sustainable Finance and COVID-19: The Reaction of ESG Funds to the 2020 Crisis

Pisani

Russo

2021

Sustainability

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“…This implies that investment in ESG indices may provide equally good or even better returns while pursuing an ethics-focused investment strategy. Ouchen (2021) empirically verified whether the series of returns of an ESG index was less volatile than that of a conventional stock index. He concluded that the ESG index was relatively less turbulent than the stock index.…”

Section: Introductionmentioning

confidence: 90%

Volatility Modeling and Dependence Structure of ESG and Conventional Investments

Górka

Kuziak

2022

Risks

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The question of whether environmental, social, and governance investments outperform or underperform other conventional financial investments has been debated in the literature. In this study, we compare the volatility of rates of return of selected ESG indices and conventional ones and investigate dependence between them. Analysis of tail dependence is important to evaluate the diversification benefits between conventional investments and ESG investments, which is necessary in constructing optimal portfolios. It allows investors to diversify the risk of the portfolio and positively impact the environment by investing in environmentally friendly companies. Examples of institutions that are paying attention to ESG issues are banks, which are increasingly including products that support sustainability goals in their offers. This analysis could be also important for policymakers. The European Banking Authority (EBA) has admitted that ESG factors can contribute to risk. Therefore, it is important to model and quantify it. The conditional volatility models from the GARCH family and tail-dependence coefficients from the copula-based approach are applied. The analysis period covered 2007 until 2019. The period of the COVID-19 pandemic has not been analyzed due to the relatively short time series regarding data requirements from models’ perspective. Results of the research confirm the higher dependence of extreme values in the crisis period (e.g., tail-dependence values in 2009–2014 range from 0.4820/0.4933 to 0.7039/0.6083, and from 0.5002/0.5369 to 0.7296/0.6623), and low dependence of extreme values in stabilization periods (e.g., tail-dependence values in 2017–2019 range from 0.1650 until 0.6283/0.4832, and from 0.1357 until 0.6586/0.5002). Diversification benefits vary in time, and there is a need to separately analyze crisis and stabilization periods.

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“…ESG investing exhibits positive characteristics during turbulent markets such as during the COVID-19 market shock [16]. Looking back to the year 2020, the market experienced anxiety and uncertainty due to the coronavirus outbreak, and declined, between February and March 2020, by more than 30%.…”

Section: Positive Implications Of Esg Investingmentioning

confidence: 99%

Perspective Chapter: The Environmental, Social, and Governance (ESG) Investment and Its Implications

Sarajoti¹,

Chatjuthamard²,

Papangkorn³

et al. 2023

Business, Management and Economics

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Investment management has been an important part in a long-term financial planning for investors around the world. Traditionally, investors aim to maximize the risk premium relative to the riskiness of the investment subjected to certain goals and constraints such as the time horizon, risk appetite, and consumption behavior. Recently, investors, both retail and institutional investors, have shown significant interests in sustainability especially on the environmental, social, and governance, which is often referred to as ESG investments. Studies on ESG investing are unable to reach consensus. We will review literature related to ESG investing in order to identify key limitations that obstruct advancements in this field. In particular, key limitations that we have identified involve the issues of data inconsistencies and the choice of benchmarks, among others. Furthermore, this chapter identifies areas for future research that address these limitations and thus should advance research in this field.

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Is the ESG portfolio less turbulent than a market benchmark portfolio?

Cited by 30 publications

References 45 publications

Sustainable Finance and COVID-19: The Reaction of ESG Funds to the 2020 Crisis

Sustainable Finance and COVID-19: The Reaction of ESG Funds to the 2020 Crisis

Volatility Modeling and Dependence Structure of ESG and Conventional Investments

Perspective Chapter: The Environmental, Social, and Governance (ESG) Investment and Its Implications

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