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<p>There is a growing interest in sustainable investment strategies, which combine traditional financial metrics with Environmental, Social, and Governance (ESG) factors. However, existing portfolio optimization models may not fully address the complexities of building socially responsible portfolios. Hence, to tackle this challenge, we employ a novel framework aiming to construct sustainable investment portfolios that consider positive social and environmental impact alongside financial data. To test the proposed model, we focused on the daily stock prices in the S&amp;P 500 index during the period between 1/2/2010 and 1/6/2023. Our findings demonstrate that portfolios constructed using the proposed methodology not only achieve the highest returns but also exhibit the lowest volatility, as evidenced by superior Sharpe and Sortino ratios. In particular, both the Mean Variance (MV) and Maximum Sharpe ratio (MSR) models consistently outperform other approaches in all three markets. Notably, the MSR model demonstrates exceptional performance, nearly exceeding all competitors across all five performance metrics evaluated. Additionally, the ESG-Aware model exhibits a propensity to select stocks with superior ESG ratings, aligning with the preferences of socially responsible investors. The results indicate that incorporating Multi-Criteria Decision-Making (MCDM) and a Deep Learning (DL) model can improve performance, offering investors options to enhance returns and reduce investment risks. Furthermore, the integration of ESG factors into the portfolio construction process yields portfolios with higher ESG scores, emphasizing a commitment to sustainable and responsible investment practices. This not only underscores the significance of ESG considerations but also highlights the need for a balanced approach that considers sustainability objectives and financial profitability in investment decision-making processes; thus, investors can still gain satisfying profits from investments that consider ESG. This paper offers valuable insights for policymakers and investors interested in integrating sustainability into their investment strategies. The proposed framework demonstrates the potential for constructing profitable, low-risk portfolios while prioritizing ESG factors.</p>

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A Sustainable Portfolio Construction Model Based on ESG and Deep Learning Algorithms: Evidence from the U.S. Market

  • 期刊论文

  • 发表日期：

    2025年5月10日

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  • Seyed Mehrzad Asaad Sajadi,
  • Ali Fereydooni,
  • Seyed Alireza Athari,
  • Sabri Farhadi

摘要

There is a growing interest in sustainable investment strategies, which combine traditional financial metrics with Environmental, Social, and Governance (ESG) factors. However, existing portfolio optimization models may not fully address the complexities of building socially responsible portfolios. Hence, to tackle this challenge, we employ a novel framework aiming to construct sustainable investment portfolios that consider positive social and environmental impact alongside financial data. To test the proposed model, we focused on the daily stock prices in the S&P 500 index during the period between 1/2/2010 and 1/6/2023. Our findings demonstrate that portfolios constructed using the proposed methodology not only achieve the highest returns but also exhibit the lowest volatility, as evidenced by superior Sharpe and Sortino ratios. In particular, both the Mean Variance (MV) and Maximum Sharpe ratio (MSR) models consistently outperform other approaches in all three markets. Notably, the MSR model demonstrates exceptional performance, nearly exceeding all competitors across all five performance metrics evaluated. Additionally, the ESG-Aware model exhibits a propensity to select stocks with superior ESG ratings, aligning with the preferences of socially responsible investors. The results indicate that incorporating Multi-Criteria Decision-Making (MCDM) and a Deep Learning (DL) model can improve performance, offering investors options to enhance returns and reduce investment risks. Furthermore, the integration of ESG factors into the portfolio construction process yields portfolios with higher ESG scores, emphasizing a commitment to sustainable and responsible investment practices. This not only underscores the significance of ESG considerations but also highlights the need for a balanced approach that considers sustainability objectives and financial profitability in investment decision-making processes; thus, investors can still gain satisfying profits from investments that consider ESG. This paper offers valuable insights for policymakers and investors interested in integrating sustainability into their investment strategies. The proposed framework demonstrates the potential for constructing profitable, low-risk portfolios while prioritizing ESG factors.