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BNP Paribas Asset Management: Exploring the relationship between modern portfolio theory and SDG investing

At first glance, investing to achieve outcomes aligned with the Sustainable Development Goals may appear inconsistent with an optimised portfolio outcome under the modern portfolio theory. However, tailwinds or risks associated with SDG-oriented investments may not be appropriately priced in traditional risk-return assessments. This suggests that assessing the SDG profile of investees – which can serve as a proxy for their externalities –is an important supplement to modern portfolio theory-driven analytical approaches and could contribute to portfolio resilience or improved risk-adjusted returns.

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