Thomas M. Idzorek, CFA, is the author of “Personalized Multiple Account Portfolio Optimization,” for the Financial Analysts Journal, and co-author of Popularity: A Bridge between Classical and Behavioral Finance, from the CFA Institute Research Foundation.

Environmental, social, and governance (ESG) investing is a topic that sparks debates and passion but has unfortunately been politicized in the United States. This politicization hinders a nuanced understanding of ESG analysis and its impact on investment portfolios. However, the popularity asset pricing model (PAPM) offers a way to rise above the binary political landscape and gain insight into the effects of ESG considerations on risk, expected returns, and portfolio construction.

The popularity asset pricing model (PAPM) offers a unique and comprehensive perspective compared to traditional models like the capital asset pricing model (CAPM) and mean-variance optimization. While the CAPM assumes market efficiency and homogeneous market views, the PAPM accounts for disagreement and individual preferences among investors, leading to a more tailored and flexible approach to portfolio construction.