How to Improve Investment Portfolio of ESG Companies under Constrains

Abstract

This paper explores the construction of investment portfolios based on ESG (Environmental, Social, Governance) factors using Markowitz’s portfolio theory. We selected 50 companies based on MSCI ESG ratings and used 2023 stock price data to construct portfolios of various sizes (10, 30, and 50 stocks). Through Excel tools, we calculated covariance matrices, simulated stock allocations, and analyzed weekly returns for each portfolio. We optimized risk-adjusted returns and employed the Sharpe ratio to identify the optimal portfolio. Our findings demonstrate the positive impact of ESG factors on long-term portfolio stability and highlight the importance of Markowitz’s model in financial risk management. This study provides practical insights and a fresh perspective on optimizing ESG-based investment decisions in the current market environment.