Green fees: Sustainability impacts on portfolio management
Year: 2025
Type: article
Abstract: As Environmental, Social, and Governance (ESG) regulations tighten, portfolio managers must navigate the trade-offs between sustainability, financial performance, and implementation costs. This is the first study to analyze the impact of ESG rater heterogeneity on portfolio outcomes while explicitly incorporating the transaction costs generated by fixed-interval rebalancing. We assess portfolios using several ESG screening approaches at varying intensity levels using ratings from Refinitiv, Bloomberg, and MSCI. We construct 182 portfolios from the constituents of the S&P 500, S&P 400, and STOXX 600 indices, with daily observations from 2014 to 2024. Our results show that ESG screening systematically affects portfolio performance, with effects depending on allocation strategy, rating provider, and market context. Stricter screening thresholds amplify these differences by constraining investable universes and increasing rebalancing costs. In addition, we identify key drivers of transaction costs, highlighting the critical role of rater selection and price drifts. Additionally, we perform a block bootstrap simulation for the S&P 500, generating 15,500 individual portfolio paths, and apply a paired permutation test to demonstrate the significance and robustness of the observed differences.
Authors: Doga Alkan, Rayan Ayari, Florentina Paraschiv
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,770
OpenAlex ID: W4416822322