Track: Business Management

Abstract

Environmental, social and governance (ESG) has experienced extremely proliferation and grew by 42% in recent years. The US Forum for Sustainable and Responsible Investment in 2020 has indicated that the ESG-related investments accounts for USD 17.1 trillion of total assets under management by professional financial institutes. The corporate with superior ESG performance normally has higher values. This value enhancement may be achieved by alleviating information asymmetry, increasing future profit and cash flow, and lowering financing costs. On the flip side, some research works document no compelling evidence that ESG and financial performance can go hand in hand. One of the possible reasons is that the nature of performance evaluation is a multi-faceted. A simple performance evaluation architecture is not appropriate to drew the real picture of corporate’s inherent operation. Furthermore, the incorporation of ESG into the investment portfolio selection is still a controversial topic among academia and investment community. To fill this gap, this study aims at combining ESG performance and financial descriptors (i.e., value, quality and volatility) via a sophisticated architecture, namely two-stage cross-efficiency data envelopment analysis (CE-DEA) to uncover any weakness hidden in the best practices and yields a reliable suggestion for decision makers to form their investment strategies under anticipated risk exposures. The result indicated that the introduced architecture is a promising alternative for investment portfolio selection.