Sustainable Portfolio Management and Investment Analysis: Risk and Return of High ESG-Scoring BSE Sensex Stocks

Incorporation of Environmental, Social, and Governance (ESG) considerations into investment has gained prominence, reflecting the growing acknowledgment of the importance of sustainability in financial performance. ESG considerations serve as complex indicators of business responsibility, including aspects such as environmental footprint, social engagement, and governance. The research study explores connection between ESG capability and Investment returns performance by creating two-asset portfolios of firms with outstanding ESG ratings on the BSE Sensex. Five companies across different sectors—Marico Ltd, HDFC Bank, Bharti Airtel, Tata Consumer Products Ltd, and EID Parry—were selected based on ESG Risk AI 360° ratings. The study approximates average returns, standard deviations, correlations, portfolio weights, and portfolio risks for ten unique pairings. Findings suggest that the Marico–EID Parry portfolio offers the lowest risk (8.74%) and high return (20.42%), which is the best bet among risk-averse investors. Conversely, the Tata Consumer–EID Parry pair offers the highest return (42.04%) albeit at the cost of greater risk (42.35%). Visualization of findings through risk-return plots and heat maps emphasizes the role of correlation and industry diversification in the performance of the portfolio. This study contributes to the nascent literature on sustainable investing by demonstrating how portfolios balanced on ESG principles can optimize risk-adjusted returns through systematic pairing and quantitative evaluation.