Effect of Esg Performance on Portfolio Performance – a Study of Portfolios of Nifty-indexed Stocks in India

Environmental Social and Governance (ESG) based investing has gained traction in the current times. In order to become popular and gain acceptance, it would be useful to show that portfolios comprising stocks of companies with higher ESG scores provide superior risk adjusted returns in comparison to portfolios created out of stocks of corporates with lower ESG scores. The current paper attempts to study this, using portfolios constructed out of stocks comprising the NIFTY index in the Indian capital market. Using a quantile approach, the study compares the risk adjusted returns of portfolios using three measures namely Sharpe ratio, Treynor ratio and Jensen’s alpha for a period of nine years from 2014-15 to 2022-23. The results show that on the overall, portfolios with stocks of companies with higher ESG ratings provide higher risk-adjusted returns compared to portfolios with stocks of companies with lower ESG scores. JEL Classification Code: G110