Socially Responsible Investment Portfolios: Does the Optimization Process Matter?

Ioannis Oikonomou, Emmanouil Platanakis, Charles Sutcliffe

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This study investigates the impact of the choice of optimization technique when constructing Socially Responsible Investment (SRI) portfolios. Corporate Social Performance (CSP) scores are price sensitive information that is subject to considerable estimation risk. Therefore, uncertainty in the input parameters is greater for SRI portfolios than conventional portfolios, and this affects the selection of the appropriate optimization method. We form SRI portfolios based on six different approaches and compare their performance along the dimensions of risk, risk-return trade-off, diversification and stability. Our results for SRI portfolios contradict those of the conventional portfolio optimization literature. We find that the more “formal” optimization approaches (Black-Litterman, Markowitz and robust estimation) lead to SRI portfolios that are both less risky and have superior risk-return trade-offs than do more simplistic approaches; although they also have more unstable asset allocations and lower diversification. Our conclusions are robust to a series of tests, including the use of different estimation windows and stricter screening criteria.
Original languageEnglish
Pages (from-to)379-401
Number of pages23
JournalBritish Accounting Review
Issue number4
Early online date28 Oct 2017
Publication statusPublished - 1 Jun 2018
EventFMA European Conference - Helsinki, Finland
Duration: 9 Jun 201610 Jun 2016


  • Corporate social responsibility
  • CSR
  • CSP
  • SRI
  • Sustainability
  • Portfolio optimization

ASJC Scopus subject areas

  • General Business,Management and Accounting


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