Sustainable Investing: ESG Mutual Funds Performance

Abstract

Sustainability has become an integrating part of our society as the world faces significant issues related to pollution and resources mismanagement. The finance sector has not been spared. In fact, new forms of investments have been divulgated, following the investors’ growing demand for sustainable products. This study aims at analyzing the performance of ESG (“Environmental, Social and Governance”) mutual funds, comparing them with a sample of conventional open-end funds. Our data belong to the 2008-2018 period, with a specific focus on European and American equity-focused funds. Funds whose activity ceased during the selected time-window have been excluded to get rid of the survivorship bias. Multifactor models are the designated tool through which we seek to give empirical evidence to our results. In particular, we are going to exploit two models, the well known Carhart 4-factor model, and the Fama and French 5-factor model. Moreover, we are attempting to integrate an additional “ESG” factor which accounts for the sustainability component. The final part of the paper comments the results of the regressions, with the goal of offering a clear picture of which results that investors should expect when sustainable-wise components have been integrated into the investment strategy.