An Empirical Study on Performance Comparison Between ESG Portfolio and Stock Market Index with Generalized Reduced Gradient Method

Xiaoyang Zhang

doi:10.54254/2754-1169/2025.CAU27165

Advances in Economics, Management and Political SciencesOpen access

An Empirical Study on Performance Comparison Between ESG Portfolio and Stock Market Index with Generalized Reduced Gradient Method

Research Article

Open Access

An Empirical Study on Performance Comparison Between ESG Portfolio and Stock Market Index with Generalized Reduced Gradient Method

Xiaoyang Zhang ^1*

¹ Renmin University of China

^*Corresponding author: extrazxy@alu.ruc.edu.cn

Published on 24 September 2025

AEMPS Vol.218

ISSN (Print): 2754-1177

ISSN (Online): 2754-1169

ISBN (Print): 978-1-80590-385-7

ISBN (Online): 978-1-80590-386-4

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Abstract

As people’s awareness of the importance of sustainability grows, ESG investing becomes an integral part of investment management and generates appreciable returns. In order to study the performance of ESG portfolio, this article picks 81 companies from MSCI ESG USA Leaders Index that listed on NASDAQ to form the stock universe based on the data from 2015 to 2025. ESG scores data are also included to indicate and control the ESG level. Portfolios at different ESG levels are established using Generalized Reduced Gradient Method as the optimizer. Taking the optimal portfolio derived from Index Model and NASDAQ-100 Index as benchmarks helps intuitively understanding the benefit and defect of ESG investing. The research runs static analysis over the whole time horizon and dynamic analysis in each year. The empirical result shows that ESG portfolios have absolute advantages over the market index and not too bad performance compared to the optimal portfolio. It is also found that ESG investing may have some effect on uncertainty removal and return smoothing, which does not monotonically change with the ESG level. The research offers supportive reason why investors should incorporate ESG factors in investment.

Keywords:

ESG Investing, Portfolio Optimization, Sustainable Finance

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References

[1]. Kuzmina, J., & Lindemane, M. (2017). Esg Investing: New Challenges and New Opportunities. Journal of business management, (14).

[2]. Eccles, N. S., & Viviers, S. (2011). The origins and meanings of names describing investment practices that integrate a consideration of ESG issues in the academic literature. Journal of business ethics, 104(3), 389-402.

[3]. Heinkel, R., Kraus, A., & Zechner, J. (2001). The effect of green investment on corporate behavior. Journal of financial and quantitative analysis, 36(4), 431-449.

[4]. Barko, T., Cremers, M., & Renneboog, L. (2022). Shareholder engagement on environmental, social, and governance performance. Journal of Business Ethics, 180(2), 777-812.

[5]. Drei, A., Le Guenedal, T., Lepetit, F., Mortier, V., Roncalli, T., & Sekine, T. (2019). ESG investing in recent years: New insights from old challenges. Available at SSRN 3683469.

[6]. Wang, Z., Zhang, Y., & Li, X. (2018). An empirical study on ESG investment portfolios under parametric quadratic programming compared with stock market indices. Proceedings of the 20th Annual Conference of China Management Science, 579–584.

[7]. Markowitz, H. M. (1952) Portfolio Selection. Journal of Finance, 7(1), 77-91.

[8]. Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The journal of finance, 19(3), 425-442.

[9]. Lasdon, L. S., Waren, A. D., Jain, A., & Ratner, M. (1978). Design and testing of a generalized reduced gradient code for nonlinear programming. ACM Transactions on Mathematical Software (TOMS), 4(1), 34-50.

[10]. Chapra, S. C., & Canale, R. P. (2011). Numerical methods for engineers (Vol. 1221). New York: Mcgraw-hill.

References

[1]. Kuzmina, J., & Lindemane, M. (2017). Esg Investing: New Challenges and New Opportunities. Journal of business management, (14).

[3]. Heinkel, R., Kraus, A., & Zechner, J. (2001). The effect of green investment on corporate behavior. Journal of financial and quantitative analysis, 36(4), 431-449.

[4]. Barko, T., Cremers, M., & Renneboog, L. (2022). Shareholder engagement on environmental, social, and governance performance. Journal of Business Ethics, 180(2), 777-812.

[5]. Drei, A., Le Guenedal, T., Lepetit, F., Mortier, V., Roncalli, T., & Sekine, T. (2019). ESG investing in recent years: New insights from old challenges. Available at SSRN 3683469.

[7]. Markowitz, H. M. (1952) Portfolio Selection. Journal of Finance, 7(1), 77-91.

[8]. Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The journal of finance, 19(3), 425-442.

[10]. Chapra, S. C., & Canale, R. P. (2011). Numerical methods for engineers (Vol. 1221). New York: Mcgraw-hill.

Cite this article

Zhang,X. (2025). An Empirical Study on Performance Comparison Between ESG Portfolio and Stock Market Index with Generalized Reduced Gradient Method. Advances in Economics, Management and Political Sciences,218,38-44.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

About volume

Volume title: Proceedings of ICEMGD 2025 Symposium: Resilient Business Strategies in Global Markets

ISBN: 978-1-80590-385-7(Print) / 978-1-80590-386-4(Online)

Editor: Florian Marcel Nuţă Nuţă, Li Chai

Conference website: https://2025.icemgd.org/CAU.htm

Conference date: 20 September 2025

Series: Advances in Economics, Management and Political Sciences

Volume number: Vol.218

ISSN: 2754-1169(Print) / 2754-1177(Online)

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