Boudt, Cornelissen, and Croux (2012)

Boudt, Kris, Jonathan Cornelissen, and Christophe Croux.  “The sustainability of mean-variance and mean-tracking error efficient portfolios.”  Working paper (KU Leuven/Lessius and VU University Amsterdam), April 18, 2012.

From the authors' abstract:  "Besides eliminating non sustainable assets from the investment universe, a socially responsible investor also cares about the average level of portfolio sustainability. We provide a characterization of the sustainability of mean-variance and mean-tracking error efficient portfolios and derive the impact on performance of imposing a constraint on the portfolio sustainability. Over the period 2003-2010, we find that for the universe of US stocks belonging to the MSCI World index, the theoretically linear relationship between the portfolio return and sustainability of the efficient portfolios is not significant. Furthermore, we estimate the increase in variance (for a given target return) and the loss in return (for a given target variance) due to a sustainability constraint and find that the performance loss is economically small."