Enhancing Sustainable Investment Decision-Making: A Case Study of Green ETFs and Bonds Using the Markowitz

Abstract

This paper examines the relative performance of green Exchange-Traded Funds (ETFs) and green bonds in terms of the Markowitz Framework, a cornerstone of Modern Portfolio Theory. Green ETFs proved to have a better risk-return profile, achieving a positive return of 2.58% with moderate risk, which reflects their advantages in diversification and liquidity. On the other hand, green bonds returned -1.22%, illustrating that they are more focused on environmental impact than financial return. These results underline the importance of ETFs as a strong option for long-term investors who seek sustainability and profitability at the same time. This research further explores systemic challenges, including the lack of liquidity and standardization in green bonds, highlighting the necessity of supportive regulatory frameworks. The implications of this study guide policymakers and investors in optimizing sustainable portfolios, balancing economic growth with environmental responsibility. Future research directions include comparisons across a broader range of ESG-compliant instruments, longitudinal studies of market dynamics, and the application of advanced analytical models to predict future trends in sustainable finance. By providing actionable insights into enhancing decision-making in green finance, this study adds to the fast-growing body of literature on sustainable investments.