Social responsibility portfolio optimization incorporating ESG criteria
Social responsibility investment (SRI) has attracted worldwide attention for its potential in promoting investment sustainability and stability. We developed a three-step framework by incorporating environmental, social, and governance (ESG) performance into portfolio optimization. In comparison to...
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doaj-74cdf3ad22ca43858346a17df8b1da402021-04-10T04:15:43ZengKeAi Communications Co., Ltd.Journal of Management Science and Engineering2096-23202021-03-01617585Social responsibility portfolio optimization incorporating ESG criteriaLi Chen0Lipei Zhang1Jun Huang2Helu Xiao3Zhongbao Zhou4School of Business Administration, Hunan University, Changsha 410082, ChinaSchool of Business Administration, Hunan University, Changsha 410082, ChinaSchool of Business Administration, Hunan University, Changsha 410082, ChinaSchool of Business, Hunan Normal University, Changsha 410081, ChinaSchool of Business Administration, Hunan University, Changsha 410082, China; Corresponding author.Social responsibility investment (SRI) has attracted worldwide attention for its potential in promoting investment sustainability and stability. We developed a three-step framework by incorporating environmental, social, and governance (ESG) performance into portfolio optimization. In comparison to studies using weighted ESG rating scores, we constructed a data envelopment analysis (DEA) model with quadratic and cubic terms to enhance the evidence of two or more aspects, as well as the interaction between the environmental, social, and governance attributes. We then combined the ESG scores with financial indicators to select assets based on a cross-efficiency analysis. The portfolio optimization model incorporating ESG scores with selected assets was constructed to obtain a social responsibility investment strategy. To illustrate the effectiveness of the proposed approach, we applied it in the United States industrial stock market from 2005 to 2017. The empirical results show that the obtained SRI portfolio may be superior to traditional investment strategies in many aspects and may simultaneously achieve the consistency of investment and social values.http://www.sciencedirect.com/science/article/pii/S209623202100007XSocial responsibility investmentPortfolio optimizationCross efficiencyESG score |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Li Chen Lipei Zhang Jun Huang Helu Xiao Zhongbao Zhou |
spellingShingle |
Li Chen Lipei Zhang Jun Huang Helu Xiao Zhongbao Zhou Social responsibility portfolio optimization incorporating ESG criteria Journal of Management Science and Engineering Social responsibility investment Portfolio optimization Cross efficiency ESG score |
author_facet |
Li Chen Lipei Zhang Jun Huang Helu Xiao Zhongbao Zhou |
author_sort |
Li Chen |
title |
Social responsibility portfolio optimization incorporating ESG criteria |
title_short |
Social responsibility portfolio optimization incorporating ESG criteria |
title_full |
Social responsibility portfolio optimization incorporating ESG criteria |
title_fullStr |
Social responsibility portfolio optimization incorporating ESG criteria |
title_full_unstemmed |
Social responsibility portfolio optimization incorporating ESG criteria |
title_sort |
social responsibility portfolio optimization incorporating esg criteria |
publisher |
KeAi Communications Co., Ltd. |
series |
Journal of Management Science and Engineering |
issn |
2096-2320 |
publishDate |
2021-03-01 |
description |
Social responsibility investment (SRI) has attracted worldwide attention for its potential in promoting investment sustainability and stability. We developed a three-step framework by incorporating environmental, social, and governance (ESG) performance into portfolio optimization. In comparison to studies using weighted ESG rating scores, we constructed a data envelopment analysis (DEA) model with quadratic and cubic terms to enhance the evidence of two or more aspects, as well as the interaction between the environmental, social, and governance attributes. We then combined the ESG scores with financial indicators to select assets based on a cross-efficiency analysis. The portfolio optimization model incorporating ESG scores with selected assets was constructed to obtain a social responsibility investment strategy. To illustrate the effectiveness of the proposed approach, we applied it in the United States industrial stock market from 2005 to 2017. The empirical results show that the obtained SRI portfolio may be superior to traditional investment strategies in many aspects and may simultaneously achieve the consistency of investment and social values. |
topic |
Social responsibility investment Portfolio optimization Cross efficiency ESG score |
url |
http://www.sciencedirect.com/science/article/pii/S209623202100007X |
work_keys_str_mv |
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