2024/03/18 by Michele Azzone, Azzone, Michele, Emilio Barucci +3 · 1 citation
Business, Management and Accounting · Economics, Econometrics and Finance · Psychology · #FOS: Economics and business #Facilities and Workplace Management #Insurance and Financial Risk Management #Law, logistics, and international trade #Portfolio Management (q-fin.PM)
paper · pdf · doi:10.48550/arxiv.2403.11622
openalex publication_date 2024/03/18 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
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.