scholarly journals Socially Responsible Investment Portfolio Construction with a Double-Screening Mechanism considering Machine Learning Prediction

2021 ◽  
Vol 2021 ◽  
pp. 1-15
Author(s):  
Jun Zhang ◽  
Xuedong Chen
Keyword(s):  
Machine Learning ◽  
Asset Allocation ◽  
Stock Prices ◽  
Capital Allocation ◽  
Socially Responsible Investment ◽  
Sharpe Ratio ◽  
Portfolio Construction ◽  
Socially Responsible ◽  
Machine Model ◽  
Responsible Investment

Although socially responsible investment (SRI) has developed into an important investment style, only a small number of studies discuss SRI portfolio construction. In view of the overwhelming breakthrough of machine learning in prediction, this paper proposes SRI portfolio construction models by combining a double-screening mechanism considering machine learning prediction and an extended global minimum variance (GMV) model (or extended maximum Sharpe ratio (MSPR) model), which are, respectively, named double-screening socially responsible investment (DSSRI) portfolio models I and II. The proposed models consist of two stages, i.e., stock screening and asset allocation. First, this paper develops a novel double-screening mechanism incorporating environmental, social, and corporate governance (ESG) and return potential criteria to ensure that high-quality stocks with good ESG performance and high-return potential are input into the optimal portfolio. Specifically, to obtain accurate stock return predictions, an extreme learning machine model optimized by the genetic algorithm is employed to predict stock prices. Next, to trade off the financial and ESG objectives of SRI investors, an extended GMV model (or extended MSPR model) considering the ESG factor is introduced to determine the capital allocation proportion of the stocks. We take the A-share market of China as the sample to verify the effectiveness of the proposed models. The empirical results demonstrate that compared with alternative models, the proposed models can yield better annualized return and ESG score performance as well as competitive Sharpe ratio performance.

scholarly journals The Importance of Profit and Sound Financing in Socially Responsible Investment

2020 ◽  
Vol 2 (2) ◽  
pp. 1
Author(s):  
Daniel Lacalle
Keyword(s):  
Interest Rates ◽  
Asset Allocation ◽  
Negative Impact ◽  
Socially Responsible Investment ◽  
Economic Returns ◽  
Socially Responsible ◽  
Responsible Investment ◽  
Balance Sheets ◽  
Consolidation Phase ◽  
Social Environmental

Socially Responsible Investment (SRI) has grown exponentially in recent years. The rising importance of social, environmental, and governance (ESG) aspects in decision making as well as in asset allocation is undeniable. However, important challenges must be addressed. The dramatic increase in ESG investments has coincided with a period of extremely low rates and massive liquidity injections. Also, the definition of socially responsible investment is too broad and can generate misunderstandings (an approximation to the correct definitions can be found in Sandberg et al., 2009). Additionally, I find that a significant part of funds that follow ESG principles can fall into the trap of investing in heavily subsidized and high-debt sectors. Investors should monitor the risk of concentration, the soundness of profit estimates, and strength of balance sheets to avoid rent-seeking and depending heavily on subsidies and grants. Furthermore, I find that performance of ESG and SRI funds has been monitored only in a period of low rates, high liquidity, rising asset valuations, and bullish markets. More tools have to be used to monitor risk as markets enter a consolidation phase. I find that it is essential to focus on real economic returns in a mid-cycle environment as well as monitoring excess leverage to avoid the risk of a very important reduction in ESG investments in a market correction phase for markets with rising interest rates. I conclude that strong fundamental analysis, diversification, and avoiding herd mentality are essential to prevent large outflows and a negative impact on ESG growth once the cycle changes.

scholarly journals The Link Between SRI and Financial Performance: Effects and Moderators

2013 ◽  
Vol 17 (2) ◽  
pp. 105-122 ◽  
Author(s):  
Christophe Revelli ◽  
Jean-Laurent Viviani
Keyword(s):  
Financial Performance ◽  
Meta Analysis ◽  
Socially Responsible Investment ◽  
Empirical Literature ◽  
Empirical Methods ◽  
Socially Responsible ◽  
Responsible Investment ◽  
Counting Approach ◽  
Performance Effects ◽  
Vote Counting

Over the last twenty years, the debate on financial performance of socially responsible investment (SRI) has not yielded a clear consensus, arguing mainly that there was no difference in performance between SRI and ‘conventional’ investment, although SRI could underperform or outperform in some cases. Our research, based on a meta-analysis ‘vote-counting’ approach of the empirical literature, allows us to observe that the effects of SRI on financial performance are multiple. Second, we conclude that the financial performance of SRI is radically changing according to the empirical methods employed by researchers.

scholarly journals Socially Responsible Investment in Market Downturns

2010 ◽  
Vol 19 (1) ◽  
pp. 86-104
Author(s):  
Richard Copp ◽  
Michael L Kremmer ◽  
Eduardo Roca
Keyword(s):  
Socially Responsible Investment ◽  
Socially Responsible ◽  
Responsible Investment

Environmentally friendly and socially responsible investment in and by occupational pension funds in the USA and in the EU

2021 ◽  
pp. 138826272110269
Author(s):  
Lauren Daniels ◽  
Yves Stevens ◽  
David Pratt
Keyword(s):  
Financial Performance ◽  
Investment Decision ◽  
Pension Funds ◽  
Socially Responsible Investment ◽  
Occupational Pension ◽  
Socially Responsible ◽  
Responsible Investment ◽  
Occupational Pensions ◽  
The Usa ◽  
The Eu

Worldwide pension funds, in their capacity as large institutional investors, are under increasing pressure to take social and environmental considerations into account in their investment decision-making process. The concepts Socially Responsible Investment (SRI) and Environmental Social Governance (ESG) are indeed ubiquitous in the current investment and pension community. This article aims to provide some insight into the conceptual relationship between SRI and ESG and its legal implications for the investment behaviour of private pension funds in the USA and the EU. Hence, the first part of the article gives some background to the distinct concepts of SRI and ESG. This leads to the finding that SRI goes one step further than ESG by prioritising moral or ethical considerations that may not be material to an investment’s financial performance, whereas ESG functions as a guideline to enhance financial performance. The second part analyses the legal possibilities and constraints for responsible investment in American occupational pensions and the third part does the same for European occupational pensions. The article concludes with a summary and comparative overview of the American and European lessons.

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