3D Investing: Jointly Optimizing Return, Risk, and Sustainability

Abstract

Traditional mean-variance portfolio optimization is based on the premise that investors only care about risk and return. However, some investors also have non-financial objectives such as sustainability goals. We show how the traditional approach can readily be extended to meanvariance-sustainability optimization and explain why this 3D investing approach is ex-ante Pareto-optimal. We illustrate its efficacy empirically in several studies, including carbon footprint and SDG objectives. Importantly, we highlight conditions under which a 3D optimization approach is superior to a naïve 2D approach augmented with sustainability constraints.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 18 citations exist upstream.