Integrating ESG criteria into investment portfolios to reduce investor financial risk in emerging markets: CASE: stock exchange-listed companies in India (2012-2022)
Jormakka, Ella (2025)
Pro gradu -tutkielma
2025
School of Business and Management, Kauppatieteet
Kaikki oikeudet pidätetään.
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2025052755044
https://urn.fi/URN:NBN:fi-fe2025052755044
Tiivistelmä
This thesis investigates how integrating Environmental, Social, and Governance (ESG) criteria into investment portfolios in India’s emerging equity market can affect the performance of the portfolios compared to market index. Using data from 2012 to 2022, the thesis constructs three annually rebalanced portfolios. High ESG momentum portfolios (H) include the top 30 performing stocks, neutral ESG momentum portfolios (N) include the 30 most neutral performing stocks, and lastly low ESG momentum (L) portfolios include the 30 worst performing stock, based on their ESG momentum changes from t-1 to t for NSE publicly listed companies. The performance of these portfolios is analyzed using cumulative and annualized total returns in addition to risk-adjusted metrics like Sharpe ratio, Treynor ratio and Jensen’s alpha. The momentum portfolios are benchmarked against the NIFTY 50 index to assess their relative performance.
The results show that H portfolios consistently outperformed both the market index and the N and L portfolios in terms of risk-adjusted returns in the selected ten-year examination period. Notably, high portfolios achieved peak annualized yearly returns of 0.55 and 0.71 in 2013–2014 and 2019–2020, respectively, while maintaining relatively low volatility. The overall cumulative return from the ten-year period was 30,40% for H portfolio, which was almost double the cumulative return (17,67%) of the NIFTY 50 Index.
The findings of this thesis support the findings of the previous literature introduced in the thesis, thus it seems that including ESG momentum investment strategy to portfolio constructions process helps investors to gain better returns with lower risks than the market index does in the same time period in emerging markets. This research contributes to the previous research on sustainable investing by providing empirical evidence from the Indian market and highlights the possibilities of ESG criteria integration as a strategic component in portfolio management.
The results show that H portfolios consistently outperformed both the market index and the N and L portfolios in terms of risk-adjusted returns in the selected ten-year examination period. Notably, high portfolios achieved peak annualized yearly returns of 0.55 and 0.71 in 2013–2014 and 2019–2020, respectively, while maintaining relatively low volatility. The overall cumulative return from the ten-year period was 30,40% for H portfolio, which was almost double the cumulative return (17,67%) of the NIFTY 50 Index.
The findings of this thesis support the findings of the previous literature introduced in the thesis, thus it seems that including ESG momentum investment strategy to portfolio constructions process helps investors to gain better returns with lower risks than the market index does in the same time period in emerging markets. This research contributes to the previous research on sustainable investing by providing empirical evidence from the Indian market and highlights the possibilities of ESG criteria integration as a strategic component in portfolio management.