1 INTEGRATING ESG FACTORS INTO PORTFOLIO OPTIMIZATION: A RISK- ADJUSTED PERFORMANCE APPROACH Austin Olisa Eneanya 1 Dr Areghan Isibor 2 Department of Accounting, Finance & Taxation College of Postgraduate Studies, Caleb University, Lagos, Nigeria Email address: austineneanya@yahoo.co.uk Telephone: 0803-302-6362 Abstract The integration of Environmental, Social, and Governance (ESG) factors into investment portfolios has gained momentum among institutional and individual investors. This paper investigated the impact of ESG integration on portfolio performance using a mean-variance optimization framework. By constructing both traditional and ESG-screened portfolios from S&P 500 constituents over a 10-year period (2013–2023), the study evaluate performance across return, volatility, Sharpe ratio, and drawdown metrics. The findings suggested that ESG-integrated portfolios can offer competitive risk-adjusted returns, particularly during periods of market stress. The results advocated for the inclusion of ESG criteria in modern portfolio theory as a tool for managing long-term risks and enhancing sustainability Keywords: ESG investing, portfolio optimization, mean-variance, Sharpe ratio, sustainable, finance, risk-adjusted return Introduction Within the past few years, investors no longer focus on high financial returns, instead they now require their investments to have a positive impact on the society and the environment. Increased awareness has led to the emergence of Sustainability investing, which involves the allocation of