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RESEARCH PRODUCT

Companies’ Selection Methods for Inclusion in Sustainable Indices: A Fuzzy Approach

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description

Sustainability indices handle concepts which are both, of numerical and non-numerical nature. In this context, the use of Fuzzy Logic is highly useful as allows a more faithful representation of reality. Usually these indices follow a three-step process to define sustainable investment universes. First step consists of sustainability assessment. In the second step, assets are rated based on the previously assessed sustainability scores and finally, best assets are selected. This last step relies on the construction of a global score reflecting the performance of the assets in main sustainability dimensions. In this Chapter we are concerned with the third step of the selection process. We review the aggregation process used by sustainability indices to obtain overall sustainability scores and we propose the use of flexible aggregation operators for the obtaining of a global score describing the sustainability degree of a firm that takes into account the characteristics of the different dimensions to be aggregated. Assets are then ranked using this score from most to less sustainable. The proposed approach is be compared with the three-step selection process applied by Euronext in their selection process for inclusion of companies in the Euronext Vigeo family of sustainability indices.