Covid-19 and Optimal Portfolio Selection for Investment in Sustainable Development Goals

The Covid-19 pandemic and global economic recession has shrunk global energy demand and collapsed fossil fuel prices. Therefore, renewable energy projects are losing their competitiveness. This endangers the achievement of several Sustainable Development Goals (SDGs) and the Paris Agreement on Climate Change. Various consulting companies define the SDGs differently. Institutional investors hire consulting companies and allocate their investment based on the consultants' suggestions. This paper theoretically shows that the current allocation of investors by considering SDG based on various consulting companies will lead to distortion in the investment portfolio. The desired portfolio allocation can be achieved by taxing pollution and waste such as CO2, NOx, and plastics, globally with the same tax rate. Global taxation on pollution will lead to the desired portfolio allocation of assets.

Automated summary

The Covid-19 pandemic and global economic recession have resulted in a decrease in global energy demand and a collapse in fossil fuel prices, making renewable energy projects less competitive. The definition of Sustainable Development Goals (SDGs) varies among different consulting companies, leading to potential distortion in investment portfolios. A global tax on pollution and waste, such as CO2, NOx, and plastics, can help achieve the desired asset portfolio allocation.