Finance embraces sustainability: An empirical analysis of the financial performances of ETFs investing in sustainable real estate and green building

Abstract

This thesis focuses on the topic of impact finance, and it provides an analysis of the financial performances of Exchange Traded Funds (ETFs) that integrate the principles of impact investing in their investment portfolios. The main purpose of this thesis is to analyse whether sustainable investments allow the investors to mitigate some risks, as well as to investigate how the integration of ESG criteria affects the returns of ETFs in bear and bull market conditions. The first part of the thesis provides an analysis of the current state of the art of sustainable investing, as well as a review of the most recent regulation about the evolution of impact investing. The focus of the analysis are the Real Estate and the Building & Construction industries, which have been selected as interesting sectors, given their importance in national economies and the environmental impact that construction activities generate all over the world. Moreover, the impact of screening strategies and the potential mitigation of risks derived from the allocation of capitals to sustainable investments are discussed, together with the literature review about the comparison of the financial performances of ESG and traditional investments. Finally, an empirical analysis of the selected ETFs is presented. The analysis is based on the application of the Fama and French multi-factor models, which are used to evaluate and compare the financial performances and the exposure to risk of different funds investing in sustainable real estate and green building in Europe and in North America, before and after the Covid-19 pandemic. Furthermore, the extension of the Fama and French six factor model is presented, with the addition of a sustainability factor that measures the portfolio's exposure to sustainable companies and to potential ESG risks.