Theoretical Frameworks for Integrating Sustainability Factors into Institutional Investment Decision-Making

ArXiv ID: 2502.13148 “View on arXiv”

Authors: Unknown

Abstract

This paper explores key theoretical frameworks instrumental in understanding the relationship between sustainability and institutional investment decisions. The study identifies and analyzes various theories, including Behavioral Finance Theory, Modern Portfolio Theory, Risk Management Theory, and others, to explain how sustainability considerations increasingly influence investment choices. By examining these frameworks, the paper highlights how investors integrate Environmental, Social, and Governance (ESG) factors to optimize financial outcomes and align with broader societal goals.

Keywords: Sustainable Investing, ESG, Modern Portfolio Theory, Institutional Investment, Behavioral Finance

Complexity vs Empirical Score

• Math Complexity: 1.5/10
• Empirical Rigor: 2.0/10
• Quadrant: Philosophers
• Why: The paper is purely theoretical, reviewing existing frameworks like Behavioral Finance and Modern Portfolio Theory without introducing new mathematical derivations or empirical backtesting. It relies on qualitative literature review and conceptual analysis rather than data-heavy implementation or statistical modeling.

  flowchart TD
    A["Research Goal<br>How can sustainability factors<br>be integrated into<br>institutional investment decisions?"] --> B["Methodology<br>Comparative Analysis of Theoretical Frameworks"]
    
    B --> C["Key Inputs<br>Sustainability Literature &<br>Historical Investment Data"]
    
    C --> D["Computational Analysis<br>Evaluate theories against<br>ESG integration criteria"]
    
    D --> E{"Key Findings"}
    
    E --> F["Modern Portfolio Theory<br>Supports optimization via diversification"]
    E --> G["Behavioral Finance Theory<br>Addresses investor biases<br>toward sustainability"]
    E --> H["Risk Management Theory<br>Identifies ESG risks<br>as financial materiality"]