We are excited to welcome Bruno Kamdem, Adjunct Professor in the Department of Finance and Risk Engineering at NYU Tandon.
BRICS Sustainability Analytics: A Machine Learning Framework for South African ESG Factors
We delve into the complex domain of investment factors, risk, and sustainability, focusing on the Johannesburg Stock Exchange (JSE) in South Africa. The problem we address is the lack of comprehensive, country-specific factor indexes to facilitate sustainable portfolio construction in emerging markets, particularly among the BRICS nations. We emphasize the critical need to disentangle risk factors, control for factor cross-contamination, and account for corporate sustainability as a crucial component of measuring ESG related risks. Motivated by the growing importance of environmental, social, and governance (ESG) principles, we set out to create an innovative algorithmic framework that identifies dynamic ESG factors capable of mitigating sustainability risks in diversified portfolios of JSE-listed firms. Our approach, based on an empirical extension of the Pukthuanthong, Roll, and Subrahmanyam (2019) method, evaluates rotated PCA factors based on their relationships with asset return covariance, pricing in the cross-section of returns, and reward-to-risk ratios. In our study, we constructed three capital weighted ESG portfolios using a selection of JSE companies recognized for their corporate social responsibility practices. Going a step further, we extend the findings of Gu, Kelly, and Xiu (2020) on asset pricing via machine learning to map sustainability elasticity coefficients, creating unique E, S, and G factors tailored to the JSE. Our research extends the investment factor literature in two important ways: firstly, by employing a machine learning approach to assess ESG factor efficiency among JSE firms, and secondly, by demonstrating a significant enhancement in the risk-return profile of the JSE Global Minimum Variance Portfolio (GMVP) compared to traditional methods. The implications of our work extend to the broader investment landscape, providing a data-driven framework to assess sustainability factors in emerging markets, fostering sustainable investing practices, and offering valuable insights for policy and portfolio construction in the context of the UN global compact principles.
Bruno Kamdem is a co-founder of a minority-owned consulting startup, Lepton Consulting, where he serves as Principal and ESG & Sustainable finance Practice Leader. He is also an adjunct faculty in the department of Finance and Risk Engineering (Tandon School of Engineering, New York University) where he teaches FRE-GY 6951 (Sustainable Investments). Concomitantly, he is a part-time lecturer in Mathematical Finance at the Johns Hopkins University, department of Applied Mathematics and Statistics, where he teaches EN.553.753 (Commodity Markets and Green Energy Finance). Bruno has published articles in respected journals such as the Journal of Fixed Income, Energy Policy, Renewable and Sustainable Energy Reviews. He has presented at conferences and seminars such as the International Federation of Operational Research Societies, the Peter Carr Brooklyn Quant Experience (BQE) Seminar Series, Bloomberg BBQ Seminar, Johns Hopkins University Financial Mathematics Seminar, and the University of Toronto Fields Institute. Bruno obtained his Ph.D. in Operations Research from the School of Engineering and Applied Science at the George Washington University, an M.S. in Applied Mathematics, and a B.S. in Mathematics & Economics, both from the University of Maryland, Baltimore County.
NYU Students are highly encouraged to attend in person. All other non-NYU guests are invited to attend virtually unless otherwise noted.
Meeting ID: 954 8950 9336