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The debate regarding the broader role of corporations in society has landed squarely in the lap of pension fund and endowment managers; many are being pressured by stakeholders to divest portfolios of companies that lack so-called social responsibility. While the debate goes on, optimization can be used to locate portfolio substitutes for companies that fail a corporate social responsibility screen. The penalty for eliminating a small group of undesirable stocks—whether justified or not—can be economically insignificant when the remaining investments are properly realigned. TOPICS: ESG investing, foundations & endowments, pension funds
Milevsky et al. (Sun,) studied this question.