Tracking an ESG index to solve a cryptocurrency portfolio

Abstract

This paper aims to explore the virtual prospects of cryptocurrencies, specifically Bitcoin, Ethereum and others, in order to optimize a green investment portfolio. We include an additional objective, specifically the environmental, social, and governance index (ESG), as a secondary aim. This addition allows investors to define explicit tradeoff thresholds between expected returns and risk, taking the ESG index into account, thereby enabling them to customize their portfolios. Initially, we identify approximate answers to the problem, then, we seek efficient solutions for ESG. Firefly Enhanced Algorithm (EFA) portfolio of cryptocurrencies is solved when combined with Firefly algorithm and tabu search. The findings indicate that the suggested methodology may discern portfolios with favorable returns and risks while accounting for ESG factors.

Keywords: Cryptocurrency, ESG score, Firefly algorithm, Tabu search, Portfolio optimization