Optimised ESG portfolios. Does sustainability sacrifice profit?

Abstract: The purpose of this thesis is to investigate the relationship between ESG and portfolio investment. More specifically, we investigate if sustainable portfolios that focus on good ESG performance requires sacrificing profit or if it is possible to maintain a sustainable portfolio with a high financial gain. The thesis focuses on the Swedish financial market and uses 56 different assets to investigate the relationship between profit and ESG. The relationship between sustainability and profit is analysed by creating different portfolios based on ESG scores and by measuring and comparing the performances of these portfolios. Half of the portfolios are created using Markowitz method and Sharpes ratio to create diversified efficient portfolios with optimised mean return per unit of risk, while the other half are equally weighted portfolios. The thesis also includes the results of two surveys sent to firms in the financial sector to evaluate ESGs prevalence in Sweden. The thesis finds that there is a positive correlation between the social aspect of ESG and investment profit, while it shows a negative correlation between the environmental aspect of ESG and profit.