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Empirical analysis of the trade-offs among risk, return, and climate risk in multi-criteria portfolio optimization

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  • Sebastian Utz

    (University of Augsburg
    University of Augsburg
    Sustainable Finance Research Platform)

  • Ralph E. Steuer

    (University of Georgia)

Abstract

This paper contains an empirical analysis that studies trade-offs among risk, return, and climate risk in asset management. Using a multi-criteria optimization approach to generate nondominated portfolios in a tri-criterion context, we document how it is possible in a portfolio to reduce climate risk substantially by allowing expected return to be reduced only slightly. The empirical tests conducted use the sample of stocks that were in the S &P 500 over the period 2001–2020. In demonstrating the versatility of our approach, six different linear measures of climate risk are employed.

Suggested Citation

  • Sebastian Utz & Ralph E. Steuer, 2025. "Empirical analysis of the trade-offs among risk, return, and climate risk in multi-criteria portfolio optimization," Annals of Operations Research, Springer, vol. 353(1), pages 53-76, October.
    • Handle: RePEc:spr:annopr:v:353:y:2025:i:1:d:10.1007_s10479-024-06047-9
    DOI: 10.1007/s10479-024-06047-9
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