Selecting socially responsible portfolios: A fuzzy multicriteria approach

Fernando García, Jairo González-Bueno, Javier Oliver, Nicola Riley

Research output: Contribution to journalArticlepeer-review

25 Scopus citations

Abstract

We propose a multi-objective approach for portfolio selection, which allows investors to consider not only return and downside risk criteria but also to include environmental, social and governance (ESG) scores in the investment decision-making process. Owing to the uncertain environment of portfolio selection, the return andESGscore of each asset are considered as independent L-R power fuzzy variables. To make the model more realistic, we take budget, floor ceiling and cardinality constraints into account. In order to select the optimal portfolio along the efficient frontier, we apply the Sortino ratio in a credibilistic environment. The subsequent empirical application uses a data set from Bloomberg's ESG Data in combination with US Dow Jones Industrial Average data. The experimental results show that the proposed model offers promising results for socially responsible investors seeking ethical and sustainability goals beyond the return-risk trade-off and its ability to beat the benchmark.

Original languageEnglish
Article number2496
JournalSustainability (Switzerland)
Volume11
Issue number9
DOIs
StatePublished - 1 May 2019
Externally publishedYes

Keywords

  • Downside risk
  • ESG rating score
  • L-R fuzzy numbers
  • Portfolio selection
  • Sustainable investment

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