3D Investing: Jointly Optimizing Return, Risk, and Sustainability
In this CFA Webinar, Dr. Harald Lohre will present the results of the winner paper of the CFA Germany Investment Research Award 2024.
Traditional mean-variance portfolio optimization is based on the premise that investors only care about risk and return. However, some investors also have non-financial objectives such as sustainability goals. We show how the traditional approach can readily be extended to mean-variance-sustainability optimization and explain why this 3D investing approach is ex-ante Pareto-optimal. We illustrate its efficacy empirically in several studies, including carbon footprint and SDG objectives. Importantly, we highlight conditions under which a 3D optimization approach is superior to a naïve 2D approach augmented with sustainability constraints.
Please note that the presentation must not be shared.
