How do investors value sustainability?

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Date

2022-11-30

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Alternative Title(s)

A utility-based preference optimization

Abstract

We investigate how an investor’s preference for sustainable assets in the portfolio varies for differing levels of risk aversion. Using a sample of 411 publicly listed firms in the S&P 500, we calculate financial and sustainability returns, on which the investor’s utility depends. We approximate the investor’s preference by the exponential and s-shaped utility function and optimize with regard to the sustainability preference. We find that with increasing levels of risk aversion, both minimum-variance and maximum Sharpe ratio type investors seek to incorporate sustainable assets in the portfolio.

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Keywords

ESG, Socially responsible investing, Expected utility theory, Portfolio theory

Subjects based on RSWK

Corporate Social Responsibility, Investitionsentscheidung, Nachhaltigkeit, Erwarteter Nutzen, Moderne Portfoliotheorie, Investitionsrisiko

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