An Empirical Study on Performance Comparison Between ESG Portfolio and Stock Market Index with Generalized Reduced Gradient Method

As peoples awareness of the importance of sustainability grows, ESG investing becomes an integral part of investment management and generates appreciable returns. In order to study the performance of ESG portfolio, this article picks 81 companies from MSCI ESG USA Leaders Index that listed on NASDAQ to form the stock universe based on the data from 2015 to 2025. ESG scores data are also included to indicate and control the ESG level. Portfolios at different ESG levels are established using Generalized Reduced Gradient Method as the optimizer. Taking the optimal portfolio derived from Index Model and NASDAQ-100 Index as benchmarks helps intuitively understanding the benefit and defect of ESG investing. The research runs static analysis over the whole time horizon and dynamic analysis in each year. The empirical result shows that ESG portfolios have absolute advantages over the market index and not too bad performance compared to the optimal portfolio. It is also found that ESG investing may have some effect on uncertainty removal and return smoothing, which does not monotonically change with the ESG level. The research offers supportive reason why investors should incorporate ESG factors in investment.