The Impact of ESG Investing on Portfolio Performance: An Empirical Study of Emerging Markets

Abstract

ESG investment, which stands for environmental, social, and governance investing, has become an important strategy in the global financial markets, and its applications are becoming more relevant in developing nations. This study investigates the impact of environmental, social, and governance (ESG) integration on portfolio performance in emerging markets. The study aims to accomplish three primary objectives: evaluating the performance of ESG-compliant portfolios in comparison to non-ESG portfolios; determining whether ESG factors enhance risk-adjusted returns; and identifying the challenges and opportunities associated with ESG investing. The study takes a quantitative approach, making use of secondary data from financial databases such as Bloomberg and MSCI, and covers a length of time ranging from five to ten years. The Sharpe Ratio, Jensen's Alpha, and portfolio volatility are some of the performance indicators that are studied for both ESG-compliant and non-ESG portfolios. It is clear from the results of the regression analysis that there is a positive and substantial association between ESG compliance scores and risk-adjusted returns, which highlights the significance of ESG integration in terms of financial advantages. According to the findings of a comparative investigation, ESG-compliant portfolios outperform their non-ESG counterparts in terms of returns and display reduced volatility, providing investors with better stability. But broad use in developing nations is hampered by obstacles such as uneven environmental, social, and governance (ESG) data and regulatory frameworks that are not yet fully created. In these locations, there is a substantial opportunity for environmental, social, and governance (ESG) investment to generate sustainable economic development. Opportunities in renewable energy and rising investor awareness suggest this possibility. The results highlight the twin advantages of financial success and sustainability, providing policymakers, investors, and fund managers with insights that may be put into action. Following the conclusion of the study, suggestions are made to improve environmental, social, and governance (ESG) adoption by means of standardized reporting and legislative changes. These recommendations pave the way for future research to resolve data discrepancies and investigate sector-specific ESG dynamics in developing countries.