Do socially responsible and risk-tailored portfolios win? A comparative analysis

Abstract

This study introduces three extensions of the Markowitz portfolio selection model: (1) matching portfolio risk to individual investors’ risk appetite; (2) excluding certain shares; and (3) environmental, social, and governance (ESG) integration. The models are compared to the traditional Markowitz model using empirical data from JSE Limited. The findings reveal that differentiating portfolios on the basis of risk appetites or exclusions had a limited impact on future returns. However, portfolios differentiated by ESG integration showed significantly higher future returns than the other models or industry investments. The study highlights the superiority of ESG integration and suggests that current portfolio selection models do not fully capture the art of investing.

Hierdie studie stel drie uitbreidings van die Markowitz portefeulje keuse model bekend: (1) pas portefeuljerisiko by individuele beleggers se risiko-aptyt; (2) sluit sekere aandele uit; en (3) omgewings-, maatskaplike en bestuursintegrasie (ESG). Die modelle word met die tradisionele Markowitz-model vergelyk deur empiriese data van JSE. Die bevindinge toon dat die onderskeid van portefeuljes gebaseer op risiko-aptyt of uitsluitings het ’n beperkte impak op toekomstige opbrengste gehad het. Portefeuljes wat deur ESG-integrasie onderskei word, het egter aansienlik hoër toekomstige opbrengste getoon in vergelyking met ander modelle of industriebeleggings. Die studie beklemtoon die superioriteit van ESG-integrasie en stel voor dat huidige portefeuljekeusemodelle nie die kuns van belegging ten volle vasvang nie.