Advancing Sustainable Portfolio Selection: Insights From a Structured Literature Review

This study provides a comprehensive review of the current empirical research on sustainable portfolio selection, with a particular focus on the practical implications of integrating environmental, social, and governance (ESG) criteria into investment decision-making. Combining a structured literature review (SLR) with a bibliometric analysis using Bibliometrix and VOSviewer, this paper identifies methodological approaches, critical developments, and persistent challenges in the field. A total of 44 high-quality contributions-defined as those published in A or A* journals according to the 2022 ABDC Journal Quality List or with more than four citations per year (CPY)-were selected from Scopus and Web of Science through a rigorous six-step screening process. The analysis revealed five main research themes and associated findings: (1) sustainable portfolio selection methods are divided into two dominant methodological paradigms: extensions of modern portfolio theory (MPT) through sustainability metrics and multi-criteria decision-making approaches that balance financial returns with sustainability goals; (2) ESG scores are heterogeneous across rating agencies; (3) alternative metrics emerge to measure sustainable performance; (4) screening strategies often lead to inefficient portfolio solutions; and (5) sustainable portfolios do not systematically outperform traditional portfolios. However, the review also reveals unresolved issues such as ESG data inconsistency, methodological complexity, and greenwashing risks, which continue to limit the effective implementation of sustainable investing strategies. The paper emphasizes the urgent need for robust, standardized tools that integrate both quantitative and qualitative sustainability indicators, and it calls for stronger collaborations between academia and the financial industry to enhance the real-world applicability of sustainable portfolio models.