The Role of ESG-Based Assets in Generating the Dynamic Optimal Portfolio in Indonesia

ESG-based equities, represented by the SRI-KEHATI ETF, can contribute to portfolio diversification and risk management in Indonesia. Using daily data from 2018–2023 and PELT, DCC-GARCH, and quadratic programming methods, portfolios combining ESG equities with LQ45, gold, crude oil, government bonds, and Bitcoin were evaluated across pre-COVID-19, COVID-19, and recovery periods. Findings indicate that ESG-based equities generally reduced portfolio risk and improved risk-adjusted performance, particularly during the COVID-19 pandemic. Their diversification and hedging effects were especially evident when combined with riskier assets such as crude oil and Bitcoin, highlighting the value of active portfolio rebalancing.

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