Preference direction-based approach for sustainable portfolio construction

[EN] This paper aims to provide a novel framework for incorporatinginvestor preferences that integrate sustainability criteria as a thirdobjective in portfolio optimization problems. The approach isbased on the concept of preference directions, changing thegeometric properties of the objective space...

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Autores: Hilario Caballero, Adolfo|||0000-0002-3237-8652, Garcia-Bernabeu, Ana|||0000-0003-3181-7745, Salcedo-Romero-de-Ávila, José-Vicente|||0000-0003-1577-5039, Pla Santamaría, David|||0000-0003-1563-3997
Tipo de recurso: artículo
Fecha de publicación:2026
País:España
Institución:Universitat Politècnica de València (UPV)
Repositorio:RiuNet. Repositorio Institucional de la Universitat Politécnica de Valéncia
Idioma:inglés
OAI Identifier:oai:dnet:riunet______::7efeb1549b36944a72501ad0d8eded6c
Acceso en línea:https://riunet.upv.es/handle/10251/235846
Access Level:acceso abierto
Palabra clave:Investors&apos
preferences
ESG pillars
Sustainable portfolio selection
Multi-objective optimization
Socially responsible investments
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network_acronym_str ES
network_name_str España
repository_id_str
spelling Preference direction-based approach for sustainable portfolio constructionHilario Caballero, Adolfo|||0000-0002-3237-8652Garcia-Bernabeu, Ana|||0000-0003-3181-7745Salcedo-Romero-de-Ávila, José-Vicente|||0000-0003-1577-5039Pla Santamaría, David|||0000-0003-1563-3997Investors&apospreferencesESG pillarsSustainable portfolio selectionMulti-objective optimizationSocially responsible investments[EN] This paper aims to provide a novel framework for incorporatinginvestor preferences that integrate sustainability criteria as a thirdobjective in portfolio optimization problems. The approach isbased on the concept of preference directions, changing thegeometric properties of the objective space and guiding thedirection of the multi-objective optimization. This reinterpretationof the dominance concept aids in obtaining the Pareto frontsolutions. Investors¿ preferences can be integrated before theoptimization process without modifying the algorithm, or at thedecision-making stage after obtaining the efficient frontier. Weempirically test our approach¿s performance on actual sociallyresponsible funds and on the S&P 500 index. Our findingssuggest that this approach provides a better understanding ofESG preference integration by refocusing the region of interest,facilitating more effective investor decision-making. The benefitsof our approach include improved portfolio sustainableconstruction and a more comprehensive understanding ofinvestor preferences in sustainable investing.Earthscan Ltd.Departamento de Ingeniería de Sistemas y AutomáticaDepartamento de Economía y Ciencias SocialesInstituto Universitario de Automática e Informática IndustrialEscuela Técnica Superior de Ingeniería IndustrialEscuela Politécnica Superior de AlcoyGrupo de Investigación de Economía Internacional y DesarrolloRepositorio Institucional de la Universitat Politècnica de València Riunet20262026-04-03journal articlehttp://purl.org/coar/resource_type/c_6501VoRhttp://purl.org/coar/version/c_970fb48d4fbd8a85info:eu-repo/semantics/articleapplication/pdfhttps://riunet.upv.es/handle/10251/235846reponame:RiuNet. Repositorio Institucional de la Universitat Politécnica de Valénciainstname:Universitat Politècnica de València (UPV)Inglésengopen accesshttp://purl.org/coar/access_right/c_abf2Reconocimiento (by)http://creativecommons.org/licenses/by/4.0/info:eu-repo/semantics/openAccessoai:dnet:riunet______::7efeb1549b36944a72501ad0d8eded6c2026-06-13T07:49:27Z
dc.title.none.fl_str_mv Preference direction-based approach for sustainable portfolio construction
title Preference direction-based approach for sustainable portfolio construction
spellingShingle Preference direction-based approach for sustainable portfolio construction
Hilario Caballero, Adolfo|||0000-0002-3237-8652
Investors&apos
preferences
ESG pillars
Sustainable portfolio selection
Multi-objective optimization
Socially responsible investments
title_short Preference direction-based approach for sustainable portfolio construction
title_full Preference direction-based approach for sustainable portfolio construction
title_fullStr Preference direction-based approach for sustainable portfolio construction
title_full_unstemmed Preference direction-based approach for sustainable portfolio construction
title_sort Preference direction-based approach for sustainable portfolio construction
dc.creator.none.fl_str_mv Hilario Caballero, Adolfo|||0000-0002-3237-8652
Garcia-Bernabeu, Ana|||0000-0003-3181-7745
Salcedo-Romero-de-Ávila, José-Vicente|||0000-0003-1577-5039
Pla Santamaría, David|||0000-0003-1563-3997
author Hilario Caballero, Adolfo|||0000-0002-3237-8652
author_facet Hilario Caballero, Adolfo|||0000-0002-3237-8652
Garcia-Bernabeu, Ana|||0000-0003-3181-7745
Salcedo-Romero-de-Ávila, José-Vicente|||0000-0003-1577-5039
Pla Santamaría, David|||0000-0003-1563-3997
author_role author
author2 Garcia-Bernabeu, Ana|||0000-0003-3181-7745
Salcedo-Romero-de-Ávila, José-Vicente|||0000-0003-1577-5039
Pla Santamaría, David|||0000-0003-1563-3997
author2_role author
author
author
dc.contributor.none.fl_str_mv Departamento de Ingeniería de Sistemas y Automática
Departamento de Economía y Ciencias Sociales
Instituto Universitario de Automática e Informática Industrial
Escuela Técnica Superior de Ingeniería Industrial
Escuela Politécnica Superior de Alcoy
Grupo de Investigación de Economía Internacional y Desarrollo
Repositorio Institucional de la Universitat Politècnica de València Riunet
dc.subject.none.fl_str_mv Investors&apos
preferences
ESG pillars
Sustainable portfolio selection
Multi-objective optimization
Socially responsible investments
topic Investors&apos
preferences
ESG pillars
Sustainable portfolio selection
Multi-objective optimization
Socially responsible investments
description [EN] This paper aims to provide a novel framework for incorporatinginvestor preferences that integrate sustainability criteria as a thirdobjective in portfolio optimization problems. The approach isbased on the concept of preference directions, changing thegeometric properties of the objective space and guiding thedirection of the multi-objective optimization. This reinterpretationof the dominance concept aids in obtaining the Pareto frontsolutions. Investors¿ preferences can be integrated before theoptimization process without modifying the algorithm, or at thedecision-making stage after obtaining the efficient frontier. Weempirically test our approach¿s performance on actual sociallyresponsible funds and on the S&P 500 index. Our findingssuggest that this approach provides a better understanding ofESG preference integration by refocusing the region of interest,facilitating more effective investor decision-making. The benefitsof our approach include improved portfolio sustainableconstruction and a more comprehensive understanding ofinvestor preferences in sustainable investing.
publishDate 2026
dc.date.none.fl_str_mv 2026
2026-04-03
dc.type.none.fl_str_mv journal article
http://purl.org/coar/resource_type/c_6501
VoR
http://purl.org/coar/version/c_970fb48d4fbd8a85
dc.type.openaire.fl_str_mv info:eu-repo/semantics/article
format article
dc.identifier.none.fl_str_mv https://riunet.upv.es/handle/10251/235846
url https://riunet.upv.es/handle/10251/235846
dc.language.none.fl_str_mv Inglés
eng
language_invalid_str_mv Inglés
language eng
dc.rights.none.fl_str_mv open access
http://purl.org/coar/access_right/c_abf2
Reconocimiento (by)
http://creativecommons.org/licenses/by/4.0/
dc.rights.openaire.fl_str_mv info:eu-repo/semantics/openAccess
rights_invalid_str_mv open access
http://purl.org/coar/access_right/c_abf2
Reconocimiento (by)
http://creativecommons.org/licenses/by/4.0/
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.publisher.none.fl_str_mv Earthscan Ltd.
publisher.none.fl_str_mv Earthscan Ltd.
dc.source.none.fl_str_mv reponame:RiuNet. Repositorio Institucional de la Universitat Politécnica de Valéncia
instname:Universitat Politècnica de València (UPV)
instname_str Universitat Politècnica de València (UPV)
reponame_str RiuNet. Repositorio Institucional de la Universitat Politécnica de Valéncia
collection RiuNet. Repositorio Institucional de la Universitat Politécnica de Valéncia
repository.name.fl_str_mv
repository.mail.fl_str_mv
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score 15,812429

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