An Improved TOPSIS Model Based on Cumulative Prospect Theory: Application to ESG Performance Evaluation of State-Owned Mining Enterprises

The aim of this study is to provide a comprehensive decision-making method that can be applied to investment decisions based on the Environmental, Social and Governance (ESG) performance. The study contributes to the existing literature by introducing the CPT-TOPSIS model, a pioneering approach that incorporates the effect of non-rational factors on decision-making results in uncertain conditions by combining cumulative prospect theory (CPT) with the classic TOPSIS model. Moreover, by conducting an application to ESG evaluation on five state-owned mining enterprises in China, the study provides evidence of the effectiveness and improvement offered by the new model in comparison with the classic TOPSISI model and prospect theory TOPSIS (PT-TOPSIS) model. The results suggest that the CPT-TOPSIS model considers risk preferences and probability distortion in the decision-making process, narrows the gap between ESG scores, and makes ESG performance evaluation more realistic.