Abstract
The impact of ESG score uncertainty on the risk-return profile of socially responsible optimal portfolios is analyzed. Focusing on the 109 largest French company stock prices between 2021 and 2024, uncertainty about ESG score is measured through the lens of investors’ assessment rather than from ESG rating agencies. The efficient frontier is generalized by introducing the degree of investors’ social responsibility to the classic Markowitz approach. Our results show that taking into account ESG uncertainty substantially degrades the trade-off between portfolio return and volatility for highly responsible and low-risk portfolios.
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