A Synthesis of Modern Portfolio Theoryand Sustainable Investment

Peylo, Benjamin Tobias

doi:10.3905/joi.2012.21.4.033

Cited by 29 publications

(24 citation statements)

References 31 publications

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“…It also (iii) replaces the traditional, sequential view of sustainability-and financial-objectives by considering interrelationships between both factors. A preliminary empirical test confirmed the methodology and its use for a differentiated analysis of influencing factors (Peylo 2012).…”

Section: Introductionmentioning

confidence: 71%

“…with screening-techniques (Dillenburg, Greene, and Erekson 2003;Hill et al 2007), their implications on motivations and behaviour of investors and companies (Michelson et al 2004;Rhodes 2010), and the problems these approaches face (De Colle and York 2010). Ethically driven selection is usually applied in addition to conventional financial criteria, theory has been proposed (Peylo 2012) which allows for a differentiated analysis. This integrated, three-dimensional optimisation approach substitutes the individual investment decisions of a fund manager by a rule-driven algorithm that keeps (i) sustainability and (ii) risk-return diversification constant at predefined target-levels.…”

Section: Introductionmentioning

confidence: 99%

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An equation with many variables: unhiding the relationship between sustainability and investment performance

Peylo

Schaltegger

2014

Journal of Sustainable Finance & Investment

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Financial investment performance of stock portfolios is driven by many factors of influence like portfolio diversification, quality of funds management or gravitational effects of market phases. It is, therefore, quite possible that relationships between sustainability and financial performance elude measurability because they may be overshadowed and dominated by other, more powerful or temporarily more influential factors. Using a new quantitative model for portfolio optimisation that simultaneously controls for both financial and sustainability related effects, we investigate whether and how different levels of sustainability in stock portfolios influence investment return when other factors with known influence on investment performance are neutralised. The model is applied to the German Stock Market Index Deutscher Aktienindex (DAX) for the period of 2003-2012 with regard to varying market phases. The findings show a distinct yet nonlinear relationship between sustainability and investment performance that is especially strong in phases of crisis. These results may indicate a business case for socially responsible investment (SRI) that has not yet been fully capitalised with the existing SRI instruments.

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Section: Introductionmentioning

confidence: 71%

Section: Introductionmentioning

confidence: 99%

An equation with many variables: unhiding the relationship between sustainability and investment performance

Peylo

Schaltegger

2014

Journal of Sustainable Finance & Investment

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“…It can be defined as a synthesis of conventional and sustainable investment optimization, aimed at achievement of superior social and environmental performance while maintaining the financial excess return [47]. The existing studies do not demonstrate unequivocally that SRI have a positive impact on shareholder wealth [48,49].…”

Section: Corporate Social Performance and Financial Performance: The mentioning

confidence: 98%

Corporate Sustainability and Shareholder Wealth—Evidence from British Companies and Lessons from the Crisis

2016

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This study examines the impact of corporate sustainability (CS) on stock market returns for FTSE 350 companies over the period 2006-2012. We find that an investment strategy that bought shares in companies with balanced financial, social, and environmental activities would have earned an annual four-factor alpha for a value-weighted portfolio of 3.54% per year during the sample period and 2.98% above industry benchmarks. In addition, we find that CS is negatively correlated with stock return volatility, and investing in companies with CS not only generates higher returns during peak phases, but also diminishes shareholders' losses during bear phases. We have also carried out an additional, out-of-the-sample analysis for the years 2013-2015 which confirmed our results.

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“…However, most recently, the additional criterion that seems to be receiving the most consideration is social responsibility [42,57]. Over the past few years numerous papers on social responsibility in portfolio selection have been published [51,52,54,[58][59][60][61][62][63][64][65][66][67][68][69]. One of the most recent works on this subject comes from Utz et al [52] who extended the Markowitz model by complementing it with a social responsibility objective, in addition to the portfolio return and variance, thereby making the traditional efficient frontier a surface.…”

Section: The Application Of Multi-criteria Decision-making Methods Inmentioning

confidence: 99%

“…Based on the ways of integrating sustainability into the portfolio theory proposed by Peylo [67] (Figure 2), we chose the third option, namely the integration of sustainability as an additional criterion into a three-objective portfolio optimization Assumptions and constraints of the model are provided below:…”

Section: A Sustainability-oriented Model Of Financial Resource Allocamentioning

confidence: 99%

Sustainability-Oriented Financial Resource Allocation in a Project Portfolio through Multi-Criteria Decision-Making

Dobrovolskienė

Tamošiūnienė

2016

Sustainability

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Abstract:Modern portfolio theory attempts to maximize the expected return of a portfolio for a given level of portfolio risk, or equivalently minimize risk for a given level of expected return. The reality, however, shows that, when selecting projects to a portfolio and allocating resources in the portfolio, an increasing number of organizations take into account other aspects as well. As a result of the sole purpose (risk-return), it offers only a partial solution for a sustainable organization. Existing project portfolio selection and resource allocation methods and models do not consider sustainability. Therefore, the aim of this article is to develop a sustainability-oriented model of financial resource allocation in a project portfolio by integrating a composite sustainability index of a project into Markowitz's classical risk-return scheme (mean-variance model). The model was developed by applying multi-criteria decision-making methods. The practicability of the model was tested by an empirical study in a selected construction company. The proposed sustainability-oriented financial resource allocation model could be used in allocating financial resources in any type of business. The use of the model would not only help organisations to manage risk and achieve higher return but would also allow carrying out sustainable projects, thereby promoting greater environmental responsibility and giving more consideration to the wellbeing of future generations. Moreover, the model allows quantifying the impact of the integration of sustainability into financial resource allocation on the return of a portfolio.

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A Synthesis of Modern Portfolio Theoryand Sustainable Investment

Cited by 29 publications

References 31 publications

An equation with many variables: unhiding the relationship between sustainability and investment performance

An equation with many variables: unhiding the relationship between sustainability and investment performance

Corporate Sustainability and Shareholder Wealth—Evidence from British Companies and Lessons from the Crisis

Sustainability-Oriented Financial Resource Allocation in a Project Portfolio through Multi-Criteria Decision-Making

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