Integrating ESG Factors into Investment Decisions: Impacts on Portfolio Performance

This study investigates the role of environmental, social, and governance (ESG) factors in shaping investment decisions and their subsequent impact on portfolio performance in an emerging market context. Using primary data collected through a structured questionnaire, the research captures the perceptions of institutional investors and financial analysts regarding ESG integration in investment evaluation and portfolio management. A stratified random sample of 350 professionals from the financial, industrial, and service sectors was surveyed. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to assess the relationships between ESG dimensions and portfolio performance outcomes. The findings reveal that environmental and social factors exert a positive and significant influence on investment decisions, which in turn enhance perceived portfolio performance. In contrast, the governance dimension demonstrates a negative relationship, suggesting potential concerns related to governance transparency, compliance costs, or institutional effectiveness in emerging markets. Overall, the results highlight the heterogeneous effects of ESG dimensions on investment outcomes and emphasize that ESG integration is not uniformly beneficial across all components. This study contributes to the growing literature on sustainable finance by providing empirical evidence on how ESG considerations influence portfolio performance in emerging economies. The findings offer practical implications for investors, portfolio managers, and policymakers by underscoring the need for balanced, context-specific ESG strategies to optimize investment performance while supporting long-term sustainability objectives.