Sustainable Portfolio Optimization Model Using PROMETHEE Ranking: A Case Study of Palm Oil Buyer Companies

Abstract

Sustainability is one of the main concerns of decision makers, factories, and retailers. This importance increases when the organization needs to define, implement, and manage a sustainable portfolio to succeed in today’s environment of change and uncertainty. Therefore, this study examines the portfolio of palm producers from 2010 to 2020. The proposed optimization model is based on the classic mean-variance approach and companies ranked using the PROMETHEE method. Our findings indicate that the effects of this asset allocation change in favour of high-score sustainability investments significantly influence risk-adjusted returns of portfolios. According to the finding, sustainable portfolios perform better than conventional ones. The findings could be useful to private and institutional investors and fund managers in constructing and managing their portfolios. The efficient frontier of the best 50% portfolio shows a higher risk for a higher return. This could explain that a higher sustainability score in different criteria leads to more optimal portfolios in terms of risk and return. Intended contributions include considering sustainability, minimizing risk, and portfolio management simultaneously.