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The trade-off frontier for ESG and Sharpe ratio: a bootstrapped double-frontier data envelopment analysis

Sabri Boubaker Orcid Logo, Tu D. Q. Le, Riadh Manita, Thanh Ngo Orcid Logo

Annals of Operations Research, Volume: 347, Issue: 1, Pages: 717 - 741

Swansea University Author: Sabri Boubaker Orcid Logo

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DOI (Published version): 10.1007/s10479-023-05506-z

Abstract

The trade-off between the returns and the risks associated with the stocks (i.e., the Sharpe ratio, SR) is an important measure of portfolio optimization. In recent years, the environmental, social, and governance (ESG) has increasingly proven its influence on stocks’ returns, resulting in the evolv...

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Published in: Annals of Operations Research
ISSN: 0254-5330 1572-9338
Published: Springer Nature 2025
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URI: https://cronfa.swan.ac.uk/Record/cronfa69481
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spelling 2025-05-09T11:26:23.3690955 v2 69481 2025-05-09 The trade-off frontier for ESG and Sharpe ratio: a bootstrapped double-frontier data envelopment analysis 43999fff86cd8a29f4815fb4dfa47729 0000-0002-6416-2952 Sabri Boubaker Sabri Boubaker true false 2025-05-09 CBAE The trade-off between the returns and the risks associated with the stocks (i.e., the Sharpe ratio, SR) is an important measure of portfolio optimization. In recent years, the environmental, social, and governance (ESG) has increasingly proven its influence on stocks’ returns, resulting in the evolvement from a two-dimensional (i.e., risks versus returns) into a multi-dimensional setting (e.g., risks versus returns versus ESG). This study is the first to examine this setting in the global energy sector using a (slacks-based measures, SBM) ESG-SR double-frontier double-bootstrap (ESG-SR DFDB) by studying the determinants of the overall ESG-SR efficiency for 334 energy firms from 45 countries in 2019. We show that only around 11% of our sampled firms perform well in the multi-dimensional ESG-SR efficient frontier. The 2019 average (in)efficiency of the global energy sector was 2.273, given an efficient level of 1.000. Besides the differences in the firm’s input/output utilization (regarding their E, S, G, and SR values), we found that the firm- (e.g., market capitalization and board characteristics) and country-level characteristics (e.g., the rule of law) have positive impacts on their ESG-SR performance. Such findings, therefore, are essential not only to the (responsible) investors but also to managers and policymakers in those firms/countries. Journal Article Annals of Operations Research 347 1 717 741 Springer Nature 0254-5330 1572-9338 Sharpe ratio; Portfolio optimization; Environmental, social, and governance (ESG); Double frontier; Bootstrap data envelopment analysis 1 4 2025 2025-04-01 10.1007/s10479-023-05506-z COLLEGE NANME Management School COLLEGE CODE CBAE Swansea University Another institution paid the OA fee Open Access funding enabled and organized by CAUL and its Member Institutions. 2025-05-09T11:26:23.3690955 2025-05-09T11:03:01.5493883 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Sabri Boubaker 0000-0002-6416-2952 1 Tu D. Q. Le 2 Riadh Manita 3 Thanh Ngo 0000-0003-3679-1548 4 69481__34218__fcb897474e1a47de838741ec3ce44128.pdf 10479_2023_Article_5506.pdf 2025-05-09T11:03:01.5490846 Output 543564 application/pdf Version of Record true © The Author(s) 2023. This article is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0). true eng http://creativecommons.org/licenses/by/4.0/
title The trade-off frontier for ESG and Sharpe ratio: a bootstrapped double-frontier data envelopment analysis
spellingShingle The trade-off frontier for ESG and Sharpe ratio: a bootstrapped double-frontier data envelopment analysis
Sabri Boubaker
title_short The trade-off frontier for ESG and Sharpe ratio: a bootstrapped double-frontier data envelopment analysis
title_full The trade-off frontier for ESG and Sharpe ratio: a bootstrapped double-frontier data envelopment analysis
title_fullStr The trade-off frontier for ESG and Sharpe ratio: a bootstrapped double-frontier data envelopment analysis
title_full_unstemmed The trade-off frontier for ESG and Sharpe ratio: a bootstrapped double-frontier data envelopment analysis
title_sort The trade-off frontier for ESG and Sharpe ratio: a bootstrapped double-frontier data envelopment analysis
author_id_str_mv 43999fff86cd8a29f4815fb4dfa47729
author_id_fullname_str_mv 43999fff86cd8a29f4815fb4dfa47729_***_Sabri Boubaker
author Sabri Boubaker
author2 Sabri Boubaker
Tu D. Q. Le
Riadh Manita
Thanh Ngo
format Journal article
container_title Annals of Operations Research
container_volume 347
container_issue 1
container_start_page 717
publishDate 2025
institution Swansea University
issn 0254-5330
1572-9338
doi_str_mv 10.1007/s10479-023-05506-z
publisher Springer Nature
college_str Faculty of Humanities and Social Sciences
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hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance
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description The trade-off between the returns and the risks associated with the stocks (i.e., the Sharpe ratio, SR) is an important measure of portfolio optimization. In recent years, the environmental, social, and governance (ESG) has increasingly proven its influence on stocks’ returns, resulting in the evolvement from a two-dimensional (i.e., risks versus returns) into a multi-dimensional setting (e.g., risks versus returns versus ESG). This study is the first to examine this setting in the global energy sector using a (slacks-based measures, SBM) ESG-SR double-frontier double-bootstrap (ESG-SR DFDB) by studying the determinants of the overall ESG-SR efficiency for 334 energy firms from 45 countries in 2019. We show that only around 11% of our sampled firms perform well in the multi-dimensional ESG-SR efficient frontier. The 2019 average (in)efficiency of the global energy sector was 2.273, given an efficient level of 1.000. Besides the differences in the firm’s input/output utilization (regarding their E, S, G, and SR values), we found that the firm- (e.g., market capitalization and board characteristics) and country-level characteristics (e.g., the rule of law) have positive impacts on their ESG-SR performance. Such findings, therefore, are essential not only to the (responsible) investors but also to managers and policymakers in those firms/countries.
published_date 2025-04-01T05:55:23Z
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