ESG Integration and Risk‐Adjusted Portfolio Performance in an Emerging‐Market Institutional Context: Evidence From Brazil's Corporate Sustainability Index

This study examines how ESG integration is associated with portfolio performance in an emerging market. Unlike conventional ESG versus non‐ESG comparisons, it investigates heterogeneity among sustainable portfolios composed of firms listed in Brazil's Corporate Sustainability Index. Using 400,000 simulated portfolios from 2022 to 2025, we estimate pooled OLS models with year fixed effects across aggregate, decile‐based, and dimension‐level ESG specifications. Higher ISE scores are associated with higher returns, lower risk, and higher Sharpe ratios, although risk‐adjusted gains are stronger at intermediate sustainability levels and become less pronounced in the highest deciles. ESG dimensions also exhibit heterogeneous associations, with business model and innovation and social capital showing the most favorable profiles and corporate governance and top management the least favorable. These findings extend ESG‐performance research by revealing dimension‐specific heterogeneity within sustainable portfolios and show investors that aggregate ESG scores may conceal different performance profiles in emerging markets.