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Source: Journal Citation ReportsTM from ClarivateTM 2022

Entrepreneurship and Sustainability Issues Open access
Journal Impact FactorTM (2022) 1.7
Journal Citation IndicatorTM (2022) 0.42
Received: 2022-02-14  |  Accepted: 2022-05-02  |  Published: 2022-06-30

Title

What is the cost of maximizing ESG performance in the portfolio selection strategy? The case of The Dow Jones Index average stocks


Abstract

Portfolio selection is one of the main financial topics. The original portfolio selection problem dealt with the trade-off between return and risk, measured as the mean returns and the variance, respectively. For investors more variables other than return and risk are considered to select the stocks to be included in the portfolio. Nowadays, many investors include corporate social responsibility as one eligibility criterion. Additionally, other return and risk measures are being employed. All of this, together with further constraints such as portfolio cardinality, which mirror real-world demands by investors, have made the multicriteria portfolio selection problem to be NP-hard. To solve this problem, heuristics such as the non-dominated sorting genetic algorithm II have been developed. The aim of this paper is to analyse the trade-off between return, risk and corporate social responsibility. To this end, we construct pareto efficient portfolios using a fuzzy multicriteria portfolio selection model with real-world constraints. The model is applied on a set of 28 stocks which are constituents of the Dow Jones Industrial Average stock index. The analysis shows that portfolios scoring higher in corporate social responsibility obtain lower returns. As of the risk, the riskier portfolios are those with extreme (high or low) corporate social responsibility scores. Finally, applying the proposed portfolio selection methodology, it is possible to build investment portfolios that dominate the benchmark. That is, socially responsible portfolios, measured by ESG scores, must not necessarily be penalized in terms of return or risk.


Keywords

sustainable investment, corporate social responsibility, multi-objective portfolio optimization, LR power fuzzy numbers, NSGA-II


JEL classifications

G11


URI

http://jssidoi.org/jesi/article/966


DOI


Pages

178-192


Funding


This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License

Authors

García, Fernando
Polytechnic University of Valencia, Valencia, Spain http://www.upv.es
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Gankova-Ivanova, Tsvetelina
Technical University of Gabrovo, Gabrovo, Bulgaria https://www.tugab.bg
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González-Bueno, Jairo
Universidad Autónoma de Bucaramanga, Bucaramanga, Colombia https://unab.edu.co
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Oliver, Javier
Polytechnic University of Valencia, Valencia, Spain http://www.upv.es
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Tamošiūnienė, Rima
Vilnius Gediminas Technical University (VILNIUS TECH), Vilnius, Lithuania https://vilniustech.lt
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Journal title

Entrepreneurship and Sustainability Issues

Volume

9


Number

4


Issue date

June 2022


Issue DOI


ISSN

ISSN 2345-0282 (online)


Publisher

VšĮ Entrepreneurship and Sustainability Center, Vilnius, Lithuania

Cited

Google Scholar

Article views & downloads

HTML views: 1710  |  PDF downloads: 751

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