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A Three-Pronged Sustainability-Oriented Markowitz Model: Disruption in the fund selection process?
KTH, School of Industrial Engineering and Management (ITM).
KTH, School of Industrial Engineering and Management (ITM).
2019 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesisAlternative title
En tre-dimensionell hållbarhetsorienterad Markowitz modell (Swedish)
Abstract [en]

Since the term ESG was coined in 2005, the growth of sustainable investments has outpaced the overall asset management industry. A lot of research has been done with regards to the link between sustainability and financial performance, despite the fact that there is a lack of transparency in sustainability of listed companies. This thesis breaks down the word sustainability into two di↵erent categories, and in turn eleven di↵erent parameters. The result is the term Q score which represents a company’s sustainability. The purpose is to increase transparency in the fund selection process for asset managers. Further, a multiobjective optimization problem is solved to analyze the relationships between return, risk and sustainability. The main subject is that accommodating sustainability as a third parameter in addition to return and risk modifies the fund selection process. The result indicates that the relationships between sustainability, return and risk follow the ecient market hypothesis, implying that an investor would have to sacrifice risk and return in order to achieve higher sustainability. With that said, the results indicated that the sacrifice is relatively small, and that there are a number of sustainable portfolios that perform well. Moving on, the reporting of ESG company data is still lacking. For this reason, this master thesis acts as a precursor for any future development within the field.

Abstract [sv]

Sedan termen ESG utvecklades år 2005, har tillväxten av hållbara investeringar vuxit snabbare än den generella förvaltningsindustrin. Mycket forskning har gjorts kring hållbarhet kopplat till finansiell avkastning, men trots detta saknas det fortfarande en transparens rådande hållbarhet av noterade bolag. Detta examensarbete bryter ned termen hållbarhet till två kategorier, vilket i sin tur bryts ner till elva kvantifierbara parametrar. Resultatet blir ett så kallat Q score, som är ett värde på ett företags hållbarhet. Syftet med arbetet är att öka transparensen av fonders hållbarhetsarbete. Vidare löses ett optimeringsproblem med tre parametrar för att undersöka förållandena mellan avkastning, risk och hållbarhet. Resultatet indikerar att dessa förhållanden följer hypotesen om effektiva marknader, vilket innebär att en investerare måste offra avkastning och risk för att uppnå en mer hållbar portfölj. Med det sagt, indikererar resultatet att en investerare inte behöver offra mycket inom avkastning för att uppnå en hållbar portfölj. Vidare kvarstår det mycket arbete inom rapporteringen av ESG data på företagsnivå. Av detta skäl anses detta examensarbete vara en föregångare innan datan utvecklas vidare.

Place, publisher, year, edition, pages
2019. , p. 78
Series
TRITA-ITM-EX ; 2019:464
Keywords [en]
Portfolio optimization, ecient frontier, multi-objective optimization problem, sustainability, ESG, ecient market hypothesis, behavioural finance
Keywords [sv]
Portföljoptimering, ecient frontier, portföljteori, hållbarhet, ESG, hypotesen om effektiva marknader, beteendeekonomi
National Category
Engineering and Technology
Identifiers
URN: urn:nbn:se:kth:diva-264122OAI: oai:DiVA.org:kth-264122DiVA, id: diva2:1372170
External cooperation
SEB
Supervisors
Examiners
Available from: 2019-11-22 Created: 2019-11-22 Last updated: 2019-11-22Bibliographically approved

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