Diversificação internacional de carteiras com Environmental, Social and Governance (ESG) nos BRICS e hubs internacionais

Abstract

This paper is a cross-country study aimed at analyzing the impact of Environmental, Social, and Governance (ESG) on international portfolio diversification and stock pricing, considering the integration between BRICS and international hubs. Initially, a Systematic Literature Review (SLR) was conducted on portfolio diversification and Environmental, Social, and Governance (ESG). In summary, the studies highlight that the impact of ESG on investments can be considered positive, but it depends on various factors such as company size, geographic location, sector, portfolio formation methods, investor profile, and time horizon. Based on this, the integration between countries will be analyzed to assess the theoretical benefits of international diversification with different investment holding periods, establishing portfolio positions, and international capital flows. This analysis will be extended to the perspective of the ESG investor, and the possible impact of ESG scores on stock pricing in the international market will be examined. The empirical investigation of the potential link between ESG, asset pricing, and international portfolio diversification in the stock market can provide insights into the performance of ESG investments, which is of primary interest to different stakeholders. This study seeks to contribute to the literature by providing a empirical analysis of how different levels of financial integration and the economic status of countries can influence the effectiveness of ESG international portfolio diversification, helping investors make more informed decisions. The detrended cross-correlation analysis (DCCA) results showed that correlation increases proportionally with scales (size), reflecting greater complexity or longrange dependence as temporal scales expand. However, different market pairs exhibit significant variations in ρDCCA, reflecting varying levels of integration or dependence. Developed markets show consistent integration across all time horizons, while BRICS markets display greater heterogeneity. Regarding wavelet analysis, the results suggest that hub markets exhibit a high level of integration across all time horizons, particularly at longer scales, reflecting their structural interconnectedness and economic alignment. On the other hand, BRICS markets, being more diverse and dependent on local factors, show lower global integration, with weaker correlations at short and medium scales. For the analysis without ESG, the Sharpe ratio indicated that portfolios formed by hubs, particularly those involving the US and Japan, demonstrated superior consistency, while the lowest average ratio was observed for portfolios formed by BRICS. The time horizon analysis indicated that combinations including hubs consistently outperformed across all horizons. Regarding risk premiums, the results show that hubs exhibit more stable and predictable risk premiums, reflecting the maturity and efficiency of their markets, with notable positive size factor (SMB) and negative book-tomarket factor (HmL), indicating a focus on smaller growth companies. In BRICS markets, higher volatility led to higher premiums for SMB and investment factor (CmA), highlighting the opportunities and risks associated with emerging markets. The estimated models underscore the relevance of SMB and HmL as return determinants in hubs, while the six-factor model appears more appropriate for explaining returns in BRICS. When ESG scores are included in the analysis, portfolios formed by the US, Germany, India, and South Africa show superior performance. This result suggests that these regions, when combined, offer a more favorable balance between risk and return. The worst-performing portfolios included the combination of Japan, Brazil, India, and South Africa, with BRICS portfolios showing the poorest performance overall. The time horizon analysis of portfolios based on aggregated ESG scores reveals that most combinations of developed countries outperformed the benchmark (SPX). Conversely, the BRICS combination underperformed all others across all horizons, exceeding the benchmark in only 50% of the portfolios. For portfolios based on segregated ESG scores, the BRICS combination again showed inferior performance across all horizons, exceeding the benchmark in only 50% in the short term and 56.25% in the medium and long term. The pricing models reinforced the difference in the relevance of risk factors between hubs and BRICS. In hubs, the aggregated ESG factor (WmB) was highly significant, suggesting that weaker ESG practices demand a higher risk premium. In BRICS markets, while the WmB factor was positive, its statistical significance was inconsistent, reflecting the lesser maturity of ESG integration in these markets. When analyzing segregated ESG factors, the environmental factor (E-WmB) was more relevant in hubs, while the social factor (S-WmB) was more significant in BRICS markets. The results highlight that the incorporation of ESG practices varies widely between developed and emerging markets, with important implications for investors and policymakers. In hubs, ESG integration is already a consolidated differentiator, while in BRICS markets, gradual adoption may create long-term opportunities.