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arXiv · 2403.11622

Asset management with an ESG mandate

Michele Azzone·Emilio Barucci·Davide Stocco
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Abstract

We investigate the portfolio frontier and risk premia in equilibrium when institutional investors aim to minimize the tracking error variance under an ESG score mandate. If a negative ESG premium is priced in the market, this mandate can reduce portfolio inefficiency when the return over-performance target is limited. In equilibrium, with asset managers endowed with an ESG mandate and mean-variance investors, a negative ESG premium arises. A result that is supported by empirical data. The negative ESG premium is due to the ESG constraint imposed on institutional investors and is not associated with a risk factor.

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Michele Azzone, Emilio Barucci, Davide Stocco. 2024-03-18. Asset management with an ESG mandate. https://arxiv.org/abs/2403.11622

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