A1477
Title: Distributionally robust optimal portfolios and ESG ambiguity
Authors: Davide Lauria - University of Bergamo (Italy) [presenting]
Rosella Giacometti - University of Bergamo (Italy)
Gabriele Torri - University of Bergamo (Italy)
Abstract: ESG optimal portfolios are investment portfolios that aim to balance financial returns with environmental, social, and governance (ESG) factors. The goal is to construct a portfolio that maximizes returns while incorporating ESG criteria to ensure environmental sustainability, ethical practices, and good governance. However, ESG scores are produced by various rating agencies, each using a unique and proprietary methodology, leading to partially inconsistent evaluations of firms across agencies. This ambiguity, in turn, affects the selection of an ESG optimal portfolio, whose composition can vary significantly depending on the chosen rating agency. The scope is twofold. First, the sensitivity of mean-CVaR and mean-VaR optimal portfolios to the choice of the rating agency is assessed. Then, an ESG index and a distributionally robust ESG portfolio optimization approach are introduced to create optimal portfolios that remain robust regardless of the rating agency's methodology or market conditions.
