A Risk-Return Comparison Study of ESG Portfolios and Traditional Portfolios

Through a systematic literature review and empirical analysis, this study explores the differences and linkages between ESG portfolios and traditional portfolios in terms of risk-return dimensions from the perspectives of different market environments, industry characteristics and risk measures. First, the study reviews the Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM) and analyzes their limitations in extreme market environments and the neglect of non-financial factors. Second, the study examines the role of ESG factors in corporate value creation and risk management, showing that ESG practices can enhance corporate reputation, reduce financial risk, and increase portfolio stability. In addition, the study compares the construction logic, risk characteristics and financial performance of ESG portfolios with those of traditional portfolios, and finds that ESG investments generally exhibit greater risk resistance during periods of market turbulence, although inconsistencies in ESG rating standards remain a challenge for investors. The findings suggest that ESG investments should focus more on data transparency and standardization, and combine ESG factors with quantitative investment strategies. At the same time, adherence to a long-term investment strategy is critical to realizing the sustainable value of ESG investing.