Journal of Forest Economics > Vol 38 > Issue 2

Incorporating ESG into Optimal Stock Portfolios for the Global Timber & Forestry Industry

Hans Lööf, Royal Institute of Technology, Sweden, hans.loof@indek.kth.se , Maziar Sahamkhadam, Linnaeus University, Sweden, maziar.sahamkhadam@lnu.se , Andreas Stephan, Linnaeus University, Sweden, andreas.stephan@lnu.se
 
Suggested Citation
Hans Lööf, Maziar Sahamkhadam and Andreas Stephan (2023), "Incorporating ESG into Optimal Stock Portfolios for the Global Timber & Forestry Industry", Journal of Forest Economics: Vol. 38: No. 2, pp 133-157. http://dx.doi.org/10.1561/112.00000560

Publication Date: 19 Jun 2023
© 2023 H. Lööf, M. Sahamkhadam and A. Stephan
 
Subjects
 
Keywords
JEL Codes: G11, G12, G17, G32
Portfolio optimizationESGforestry stocksreturnriskvine copula
 

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In this article:
1. Introduction 
2. Methodology 
3. Data 
4. Results 
5. Conclusions 
Appendices 
References 

Abstract

This paper investigates how optimal portfolios of timber & forestry stocks perform relative to the global S&P timber & forestry index when corporate social responsibility (CSR) is considered. We incorporate CSR in the construction of optimal portfolios by utilizing combined environmental, social, and governance (ESG) scores. Historical as well as copula-augmented predictive models and ESG-constrained optimization are used to analyze out-of-sample performance of various portfolio strategies over the period 2018–2021. The results of copula-based portfolio strategies are better than of the historical models. Another insight gained by this study is that socially responsible investments in forestry stocks are feasible without sacrificing risk-adjusted returns.

DOI:10.1561/112.00000560