IMPACT OF ESG CRITERIA ON INVESTMENT PORTFOLIOS

Abstract

Environmental, Social, and Governance (ESG) criteria have emerged as a significant factor shaping investment decisions and portfolio management globally. This study investigates the impact of ESG integration on the performance, risk, and diversification of investment portfolios in the context of Pakistan’s emerging financial markets. Using data from Pakistani listed firms and ESG-rated investment funds between 2015 and 2024, the research explores the relationship between ESG scores and portfolio returns, volatility, and risk-adjusted performance. The study further examines investor behavior trends regarding sustainable investing and highlights challenges specific to the Pakistani market, such as data availability and regulatory frameworks. The findings suggest that portfolios incorporating strong ESG criteria not only meet sustainability objectives but also provide competitive financial returns, underlining the relevance of ESG as a critical tool for contemporary investors.