The Portfolio Costs of Sustainability and Three-Dimensional Trade-offs

Aston S. K. Chan

Chapter 15 in Sustainable Investing:Problems and Solutions, 2024, pp 403-419 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter presents a three-dimensional investment framework that combines factor investing techniques and factorized sustainability data to enable investors to quantitatively connect the sustainability dimension to the risk-and-return dimensions when constructing sustainable investment portfolios. We demonstrate how the portfolio costs of sustainability objectives, in terms of risk-and-return implications, can be modeled, followed by insights into how sustainability can be approached in risk budget terms with an examination of the potential degree of diversification available when multiple sustainability outcomes are targeted.

Keywords: Sustainable Investing; Impact Investing; Corporate Social Responsibility; Materiality; Externalities; Sustainability; ESG; ESG Funds; ESG Factors; ESG Scores; SASB; SDG; DEI; Private Equity; General Partners; Active Ownership; Investment Stewardship; Machine Learning; Natural Language Processing; Large Language Models; Transition Economy; Climate Risk; Net-zero Investing; Divestment; Greenhouse Gas Emissions; Scope 3 Emissions; Modern Portfolio Theory; Venture Investments; Carbon Dioxide Removal; Carbon Credits; Fuel Production; Portfolio Management; Market Sentiment; Factor Investing; Portfolio Optimization; Post-investment Management; Digital Transformation; Fixed Income; Portfolio Performance Measures (search for similar items in EconPapers)
Date: 2024
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