Abstract
Studies on the environmental, social, and governance (ESG) index have become increasingly important since the ESG index offers attractive characteristics, such as environmental friendliness. Scholars and institutional investors are evaluating if investment in the ESG index can positively change current portfolios. It is crucial that institutional investors seek related assets to diversify their investments when such investors create funds in the renewable energy sector, which is highly related to environmental issues. The ESG index has proven to be a good investment choice, but we are not aware of its performance when combined with renewable energy securities. To uncover this nature, we investigate the dependence structure of the ESG index and four renewable energy indices with constant and time-varying copula models and evaluate the potential performance of using different ratios of the ESG index in the portfolio. Criteria such as risk-adjusted return, standard deviation, and conditional value-at-risk (CVaR) show that the ESG index can provide satisfactory results in lowering the potential CVaR and maintaining a high return. A goodness-of-fit test is then used to ensure the results obtained from the copula models.
Highlights
In this paper, we seek to illustrate the relationship between the environmental, social, and governance (ESG) index and the renewable energy index
At the level of company revenue and stock prices, achieving a higher ESG score or being elected into the ESG index is beneficial for the companies by getting them greater attention and more public media exposure. For institutional investors, such as fund managers holding securities, futures, and forward contracts of environmental interest, ESG
We estimate the parameters of various copula models
Summary
We seek to illustrate the relationship between the environmental, social, and governance (ESG) index and the renewable energy index. “iShares trust global clean energy ETF” regards “the S&P global clean energy index” as the benchmark, investing 90% of its assets on stocks from the index and others on futures, options, and other contracts. It is reasonable for large institutional investors to choose stocks or contracts that are full of liquidity and helpful in hedging potential financial risk. For institutional investors, finding a way to reinforce the return yield of their investments in certain fields is the first priority To reinforce these investments, there should be other types of stocks or bonds contained in the portfolio that are related to the topic of green energy. The ESG refers to environmental, social, and governance factors; Energies 2020, 13, 1179; doi:10.3390/en13051179 www.mdpi.com/journal/energies
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