Abstract:
In recent years the ESG (Environmental, Social, Governance) theme has gained relevance
as society gained a renewed interest in several areas of it. This change has also affected
the way in which portfolios, but more in general, investments are made. In this study we
start by providing a general overview of the ESG field, meaning: an assessment of the
different types of sustainable investing, a review of the role of rating agencies in relation
to ESG investing and the contrast between sustainable investing and sin stocks.
After reviewing the different methods of ESG portfolio construction we than built eight
different portfolios each one containing 50 different stocks from the S&P 500 index:
one with low Environmental score, one with high Environmental score, one with low
Social score, one with high Social score, one with low Governance score, one with high
Governance score, one with low ESG score and one with high ESG score.
We finally review the different types of instruments that can be used to assess systematic
risk and by using a quantile regression, we determine how our high E,S,G, and ESG
portfolios behave in respect to low E,S,G and ESG ones during different market phases.
