Currently, many investors have the thought that Environment Social and Governance (ESG) principles are just another type of potential alpha generation factors. Others think they can be used as company risk indicators. Purview's Dr. Zhang argues that ESG principles can and should serve more than that - they could transform modern finance theory and practice that haven't changed much since 1950s. Here is how...
The view, that ESG is just another alpha generation tool, is not complete. ESG investing brings multiple benefits, beyond financial returns. Purview sees positive impact from ESG investing as the third dimension of modern finance – Return, Risk and Impact. Together, they lift and expand the traditional 2D efficient frontier line (return/risk) to a new 3D efficient surface (return/risk/impact). Investors have choices to choose a portfolio on the efficient surface that best combines the dual investment objectives of return and impact, subject to the risk tolerance.