Empirical analysis of the trade-offs among risk, return, and climate risk in multi-criteria portfolio optimization

Sebastian Utz () and Ralph E. Steuer ()
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Sebastian Utz: University of Augsburg
Ralph E. Steuer: University of Georgia

Annals of Operations Research, 2025, vol. 353, issue 1, No 4, 53-76

Abstract: Abstract This paper contains an empirical analysis that studies trade-offs among risk, return, and climate risk in asset management. Using a multi-criteria optimization approach to generate nondominated portfolios in a tri-criterion context, we document how it is possible in a portfolio to reduce climate risk substantially by allowing expected return to be reduced only slightly. The empirical tests conducted use the sample of stocks that were in the S &P 500 over the period 2001–2020. In demonstrating the versatility of our approach, six different linear measures of climate risk are employed.

Keywords: Climate risk; Portfolio selection; Nondominated surface; Trade-offs (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10479-024-06047-9

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