Integrating ESG performance in portfolio optimisation: evidence from European market

Portfolio allocation strategies have experienced radical transformation over the past few years. Institutional and traditional investors no longer focus exclusively on factors related to the financial performance of their investments, but are also interested in environmental, social and governance dynamics. For this reason, rating agencies develop ESG scores to assess performance on these non-financial criteria. In this study, we compare in the European equity market traditional allocation strategies with allocation strategies that integrate ESG performance in portfolio optimisation. The sample considered in the analysis are the companies included in the Stoxx Europe 600 over the period from 2010 to 2020. The results show that asset ESG allocation strategies are not necessarily poorer in terms of financial performance. Interestingly, some ESG strategies have outperformed traditional allocation strategies in recent years.