ESG portfolio performance across risk tiers and market conditions: New evidence from China

Author : Yun LIU

Abstract : We propose a theoretical model and examine the performance of high-rated ESG portfolios in the Chinese equity market from 2020 to 2025, using mean-variance optimization and stochastic dominance tests. Portfolios constructed by top-rated ESG firms are evaluated against the CSI 300 and CSI 800 benchmarks across distinct risk profiles. Results show that low-risk ESG portfolios consistently outperform market indices in both absolute and risk-adjusted terms. Medium-risk portfolios achieve performance parity, while high-risk portfolios deliver higher returns at the cost of weaker risk efficiency and elevated tail risk. A sub-period analysis reveals cyclical performance dynamics: ESG outperformance is concentrated in low-risk strategies during crisis periods but broadens across risk tiers during market recoveries. Our findings underscore the importance of dynamic ESG allocation, emphasizing low-risk exposure during downturns and selectively expanding to moderate-risk strategies when market recovers. Policymakers should support ESG integration through more rigorous disclosure standards and recognize its role in enhancing market resilience and sustainable capital allocation. JEL classification: G11; G14; Q56.

Keywords : ESG, risk dynamics, stochastic dominance, market conditions.

Conference Name : International Conference on International Finance and Open Economies (ICIFOE-26)

Conference Place : Tokyo, Japan

Conference Date : 23rd May 2026