Feasibility Study Of ESG Investment In China

Driven by the "dual carbon" targets and the sustainable development goals,ESG investment has developed rapidly in China because it focuses on the non-financial performance of enterprises in terms of environment,social responsibility and corporate governance,and helps capital flow to green and responsible fields.Pension funds with public,long-term and risk-averse properties also expect ESG investment to maintain and increase their value in the face of a serious aging population,thus easing the financial pressure on pension.However,the feasibility study on domestic ESG investment has not reached a conclusion,especially under the impact of the economic downturn in the past two years,the development of ESG investment has been greatly affected.This means that the feasibility of domestic ESG investment urgently needs the support of empirical theoretical research.From the perspective of pension investment,this paper aims to explore the feasibility of ESG investment in the Chinese market.Considering the asset safety and long-term stable income required by pension investment,this paper focuses on the performance of ESG investment in terms of value preservation and appreciation and risk aversion.Firstly,this paper takes China’s A-share listed companies as the research object.According to the quarterly ESG rating data provided by Shanghai Huazheng Index Information Service Co.,Ltd.,this paper constructs different ESG rating portfolios,calculates the income and performs the regression of the Chinese version of the three-factor model.The results show that the portfolio composed of stocks with high ESG ratings has obtained positive excess returns,indicating that ESG investment can bring better stock returns.Secondly,this paper uses the Barra model to estimate the total risk and idiosyncratic risk of individual stocks,and performs a fixed-effect regression on the ESG score and risk of individual stocks.The results show that there is a negative correlation between corporate ESG scores and the two types of risks,and there is heterogeneity among different scales and types of industries.Small-scale and polluting companies have a significant effect of improving ESG performance and reducing stock risk,which means that ESG investment can help control stock risk.Finally,based on the research of Pedersen et al.(2020)[29]and the impact of domestic short selling restrictions,this paper integrates ESG scores,returns and risks,and constructs corresponding ESG-SR efficient frontiers for U-type(ESG unconscious)and A-type(ESG perceptive)investors,with the CSI 300,CSI 500 and SSE 50 indexes as the targets.The results show that in order to obtain the optimal Sharpe ratio portfolio,both types of investors need to aim for ESG scores higher than the market average.and the optimal portfolio Sharpe ratio for pension type A investors is higher.The ESG-SR efficient frontier quantifies the cost of ESG preference as the decrease of Sharpe ratio when choosing the optimal portfolio,so this paper finds that the cost of improving ESG score is lower than the cost of reducing ESG score.In addition,from the perspective of risk,this paper also constructs the ESG-VOL efficient frontier and the ESG-CVaR efficient frontier based on Mean-CVaR.The results also show that ESG scores higher than the market average can help to obtain better investment portfolios.The above results all illustrate the feasibility of ESG investment in the Chinese market,which can control investment risks and realize asset preservation and appreciation.Therefore,on the basis of the above research,this paper takes pension target funds,the main force of market-oriented pension investment,as an example,guides them to participate in ESG investment from the perspective of major asset allocation,incorporates ESG factors into stock assets,and adopts the minimum variance,risk parity and equal weight models to pure ESG assets and broad ESG assets are used for dynamic asset allocation.The research results show that pension target funds can obtain higher returns and better control risks by participating in ESG investment.