Search

Financial experts seek to predict the variability of financial markets to ensure investors’ successful investments. However, there has been a big trend in finance in the last few years, which are the ESG (Economic, Social and Governance) criteria, due to the growing importance of investments being socially responsible, and because of the financial impact companies suffer when not complying with them. Consequently, creating a stock portfolio should consider not only its financial performance but compliance with ESG criteria. Portfolio optimization (PO) techniques previously applied to ESG portfolios, are all closed-form analytical ones. But the real world is rather a black box with unknown analytical expressions. Thus, in this paper we use Bayesian optimization (BO), a sequential state-of-the-art design strategy to optimize black-boxes with unknown analytical and costly-to-compute expressions, to maximize the performance of a stock portfolio under the presence of ESG criteria soft constraints incorporated into the objective function. And we compare it to two other black-box techniques widely applied for the optimization of ‘conventional portfolios’ (non-ESG ones): the metaheuristics Genetic algorithm (GA) and Simulated Annealing (SA). Although BO has many theoretical advantages over GA and SA, it has never been applied to PO. Thus, this paper investigates whether BO can be used in the ESG PO framework as an alternative and compares it with GA and SA. This is the research gap to which this paper responds. To show the empirical performance of BO, we carry out four illustrative experiments and find evidence of BO outperforming the baselines. Thus we add another different optimization approach to the world of ESG investing: a black-box non-heuristic optimization approach through BO. Our study is the first paper that leverages BO and ESG scores into a PO technique. This paper opens the door to many new research lines in (ESG) portfolio optimization.

Abstract Numerous initiatives have been developed to monitor the sustainability performance of cities, with rankings and indicators emerging as crucial tools for understanding complex urban phenomena. However, these indices require deeper analytical methods to fully interpret their results. This study highlights the application of Set-Theory methods, specifically Qualitative Comparative Analysis with process-tracing in analyzing the Urban Mobility Readiness Index (UMR) across 60 cities for 2021 and 2022. Our primary achievement is the demonstration of Set-Theory´s ability to unravel the causal complexity in urban dynamics. We find that urban mobility readiness and its negation are not determined by singular conditions but by a combination of conditions. Necessary conditions such as infrastructure and socioeconomic factors have been identified, which are critical for achieving a higher level of readiness in the UMR, and its negation. Cities lacking these conditions are less likely to reach the desired level for sustainable development. Additionally, we reveal that certain conditions serve beyond scope definitions, actively triggering causal mechanisms for both readiness and its negation. This insight underscores the multifaceted nature of urban sustainability, guiding cities towards effective strategies for sustainable development. Our study thus contributes a nuanced understanding of urban mobility, essential for policymakers and urban planners.