Empirical Research On ESG Score-constrained Portfolio

With the increasing improvement of China’s financial system and the deepening of the concept of green finance,it has become a general trend to add ESG to portfolio investment,which can not only provide companies with a performance evaluation framework,but also provide investors with investment strategies that balance risk aversion and long-term returns.The traditional portfolio investment theory only focuses on returns and risks for single target optimization.It means the pursuit of the lowest possible risk when the return is certain,and the pursuit of the highest possible return when the risk is certain.However,this method does not take the environment,society,and the cost of corporate governance into account.In traditional ESG investment strategies,most stocks with high ESG score are directly retained for portfolio investment.This method only considers the individual stock ESG index,does not consider the portfolio ESG score,and lacks a comprehensive consideration of benefits and risks.If the portfolio theory and ESG theory are combined,it is possible to achieve a win-win situation between investment returns and ESG goals.Based on the practice of De Spiegeleer J.,H(?)cht S.,Jakubowski D.,et al(2021)[10],this thesis includes ESG into the traditional mean-variance portfolio model to explore the impact of ESG score constraints on portfolio performance.Taking the traditional mean-variance portfolio ESG score as the boundary,the green ESG score constraint is defined as greater than the score,while the brown ESG score constraint is defined as less than the score.It selects the target sample stocks from the CSI 300 asset pool and STAR50 asset pool for comparative research.The inclusion of excessive portfolio ESG score constraints in the CSI 300 asset pool may lead to a decline in investment portfolio returns and the appropriate portfolio ESG score range is from 94.7 to 96.81.The higher the portfolio ESG score constraint in the STAR50 asset pool,the higher the yield,which can optimize the risk-return balance of the minimum variance portfolio.By constructing of ESG investment strategy based on the ESG portfolio model above,it is found that the cumulative return rate of green minimum variance portfolio strategy is consistent with the traditional minimum variance portfolio strategy,which means the construction of green ESG portfolio strategy can be more sustainable while ensuring returns.Referring to the compilation methods of CSI 300 index and STAR50 Index,this thesis calculates the real cumulative return rate of the asset pool composed of the target sample stocks,and compares its performance with that of ESG investment strategy.It is found that the cumulative return rate of CSI 300 ESG portfolio strategy exceeds the real cumulative return rate while the performance of STAR50 ESG investment strategy is weaker than the actual market performance.In addition,it calculates the risk-adjusted cumulative return,and finds that the most similar investment strategy is lower than the traditional minimum variance investment strategy.Taking the attention to ESG since 2016 and the outbreak of COVID-19 in 2019 as the starting point of investment,the risk-adjusted cumulative return of CSI 300 green minimum variance investment strategy is higher after October 2020 but the risk-adjusted cumulative return of STAR50 brown minimum variance investment strategy is higher.Therefore,the performance of the ESG score constraint strategy is related to the specific pool of stock assets and the exact investment period.