Sustainable Investing

Evaluating ESG Impact on Portfolio Using Factor Model

Factor models are widely used in quantitative finance to decompose asset returns into systematic risk components. In the context of Environmental, Social, and Governance (ESG) investing, factor models help assess how ESG factors influence portfolio performance, risk, and diversification. By incorporating ESG-related factors into traditional factor models, investors can quantify ESG impact on portfolio risk-adjusted returns.

Feb 27, 2025

Introduction to Quantitative Sustainable and ESG Portfolio Construction

Quantitative Sustainable and ESG (Environmental, Social, and Governance) Portfolio Construction is an advanced investment framework that integrates sustainability considerations into systematic portfolio management. This approach combines quantitative finance techniques with ESG metrics to enhance risk-adjusted returns while aligning investments with ethical, environmental, and social objectives.

Feb 20, 2025

Evaluating the Impact of ESG Sustainability Factors on US Index Returns

This study evaluates the impact of ESG (Environmental, Social, and Governance) sustainability factors on U.S. equity indices using various factor models. The analysis focuses on Morningstar's U.S. market and sustainability indices from 2013 to 2022, excluding the COVID-19 period. The study employs three types of models, a standard factor model, a time series factor model, and a functional factor model. The standard factor model assesses the instantaneous effect of ESG factors on index returns, revealing that sustainability indices effectively mitigate ESG-related risks, while traditional U.S. indices are more sensitive to these factors. The time series factor model investigates the time-lagging effects of ESG factors, showing that sustainability indices exhibit a stronger correlation with ESG factors over time, especially in the short term. Finally, the functional factor model explores the dynamic and cumulative effects of ESG factors, highlighting their significant impact on sustainability indices compared to traditional indices.

Nov 28, 2024