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Article

A Synthesis of Modern Portfolio Theory
and Sustainable Investment

Benjamin Tobias Peylo
The Journal of Investing Winter 2012, 21 (4) 33-46; DOI: https://doi.org/10.3905/joi.2012.21.4.033
Benjamin Tobias Peylo
is a management consultant at the Savings Bank Association Baden-Württemberg and a lecturer at the Centre for Sustainability Management (CSM) at Leuphana University in Lüneburg, Germany.
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Abstract

Implemented in corporate strategies, the concept of sustainability with its synthesis between economical, social and ecological objectives can have a strong business case. In consequence, consequence, companies associated with sustainability-related products and ways of production become increasingly attractive investments – both from a financial and an ethical point of view. Yet traditional theories and models of investment theory and especially portfolio theory do not take into account these developments and are so far strictly limited to return and risk as exclusive criteria for the investment decision. This gives rise to controversy and more importantly poses methodological constraints, possibly limiting the potential of successful sustainable investment. As a consequence, the homogenous implementation of sustainable investment into investment theory becomes desirable but has not yet been established. This article proposes a method based on the concept of multi-dimensional decision making. It enhances Markowitz’Modern Portfolio Theory allowing the investor to define a flexible degree of sustainability as an additional optimization criterion in the portfolio selection process. The method is applied to the investment universe of the German stock market index (DAX) and is analyzed empirically over the period 2003-2010. The achieved results are significantly above the benchmark with respect to both performance and sustainability objectives, giving credit to the concept as a viable approach for the synthesis of portfolio theory and sustainable investment.

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The Journal of Investing: 21 (4)
The Journal of Investing
Vol. 21, Issue 4
Winter 2012
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A Synthesis of Modern Portfolio Theory
and Sustainable Investment
Benjamin Tobias Peylo
The Journal of Investing Nov 2012, 21 (4) 33-46; DOI: 10.3905/joi.2012.21.4.033

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A Synthesis of Modern Portfolio Theory
and Sustainable Investment
Benjamin Tobias Peylo
The Journal of Investing Nov 2012, 21 (4) 33-46; DOI: 10.3905/joi.2012.21.4.033
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  • Article
    • Abstract
    • THE NECESSITY TO AMEND FINANCIAL THEORY
    • A SYNTHESIS OF SRI AND PORTFOLIO THEORY
    • EMPIRICAL ANALYSIS FOR THE GERMAN STOCK MARKET
    • SUMMARY AND CONCLUSION
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