A Review of the Impact of ESG Performance on Investment Portfolio Performance

Abstract

The relationship between ESG performance and investment portfolio performance has become a focal point of academic debate. This review systematically examines studies from 2009 to 2024 indexed in Web of Science, Scopus, and CNKI databases, organizing them around three interrelated questions: does ESG integration help or hurt returns, by what mechanisms does it operate, and why do empirical findings differ so sharply across studies? Three broad positions emerge. The positive school argues that ESG leadership builds intangible capital—stakeholder trust, and reputational resilience—that conventional financial metrics tend to miss. The negative school contends that ESG constraints narrow the investment universe and suppress expected returns. A third, more skeptical position holds that the divergence in findings is largely an artifact of inconsistent rating methodologies and sample choices rather than evidence for or against ESG per se. Empirical data from MSCI indices over 2016–2025 show ESG-screened portfolios performing on par with conventional benchmarks, with compound annual growth rates of 12.17% for both. The review finds that ESG integration is most reliably associated with reduced tail-risk exposure and lower financing costs, rather than with systematic outperformance. Whether it improves risk-adjusted returns depends heavily on which rating agency's scores are used, the market in question, and how the portfolio is constructed.