Sustainable Finance: The Role of ESG Factors in Investment Decisions and Portfolio Management

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Pravesh Soti, Rupali Chatterji Bhattacharya, Alok Kumar, Sudipto Kumar Sahu, Nidhi Bansal

Abstract

Sustainable finance has become from a specific topic to an important driver of financial markets, due to the inclusion of the considered ESG factors into the decision-making processes concerning investment and a portfolio. It is shown that ESG considerations do not only address social goals like climate change mitigation and reducing inequality but also have risks adjusted outperformed returns and corporate disclosure. Stakeholder theory, which is a theoretical basis of ESG integration, and behavioral finance point at long-term value creation as one of the key goals of the process. Research has also shown that ESG is beneficial to the financial performance, ESG integrated portfolios have also outperformed regular portfolios in terms of both performance and risk-adjusted returns. Both legal requirements, and large shareholders, which can include, for instance, pension funds, can promote the use of ESG. This research also highlights the analysis of ESG factors and how they impact on investment integrating both the qualitative and quantitative analysis of the factors. Consequently, ESG’s positive impact on firm-level and country-level corporate governance, risk, and return can be considered a phenomenon that unifies businesses of various industries.

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How to Cite
Pravesh Soti, Rupali Chatterji Bhattacharya, Alok Kumar, Sudipto Kumar Sahu, Nidhi Bansal. (2024). Sustainable Finance: The Role of ESG Factors in Investment Decisions and Portfolio Management. European Economic Letters (EEL), 14(4), 2128–2135. https://doi.org/10.52783/eel.v14i4.2380
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