Can sustainable investments outperform traditional benchmarks? Evidence from global stock markets

Abstract

To contribute to overcoming global sustainability challenges, investors have been increasingly interested in making sustainable investments and incorporating environmental, social and governance (ESG) criteria into their portfolio selection decisions and managerial activities. However, these investors and other agents interested in sustainable investment need updated and robust information to support their decision making. We analyzed the performance of several Dow Jones Sustainability Indices (DJSIs) and compared them with their respective market benchmarks from 2013 to 2018. The indices comprise the following regions and countries: the world, the Asia-Pacific, Europe, emerging markets and the US. The analysis was conducted based on both classic and modern portfolio metrics. The results suggest that sustainable investment performance is still heterogeneous worldwide, but there is a promising opportunity for investors to obtain superior risk-adjusted returns in certain regions while incorporating sustainable investment practices. The findings are of utmost importance to financial market practitioners, business managers, academics and other stakeholders interested in promoting investments, corporate practices and scientific knowledge to achieve the Sustainable Development Goals (SDGs).

Sustainable Development Goals and Investment Strategies: The Profitability of Using Five-Factor Fama-French Alphas

“…Despite all this, this article agrees with Betti et al [17], Cunha et al [18] and Talan and Sharma [19] in considering that this type of investment must evolve towards a sustainable investment aligned with the important and recent efforts defined by the UN to achieve global sustainable development and be concretized in the SDGs and the 2030 Agenda. In addition, it is important to note that individual and institutional investors are called upon to play an important role in achieving these SDGs.…”

“…These indices represent a useful tool for SRI investors, who use them to identify the target companies for their SRI strategies. Because of that, there are also numerous studies that, by employing the same methodology based on multi-factor asset pricing models, have focused on analyzing the evolution and performance of sustainable stock indices compared to conventional ones such as those conducted by Sauer [38], Statman [39], Schröder [40], Consolandi et al [41] and Managi et al [42], and more recently by Cunha et al [18], Jain et al [43] and Sokolovska and Kešeljević [5].…”

Socially responsible investing worldwide: Do markets value corporate social responsibility?

“…The second area of SRI research has addressed the performance of socially screened indices versus conventional market indices. Although most initial studies (e.g., Collison, Cobb, Power, & Stevenson, 2008; Consolandi, Jaiswal‐Dale, Poggiani, & Vercelli, 2008; Sauer, 1997; Schröder, 2007; Statman, 2006) find that the performance of social indices does not differ statistically from conventional indices, more recent research (e.g., Belghitar, Clark, & Deshmukh, 2014; Cunha et al, 2020) has provided evidence of the heterogeneous performance of SRI indices in different geographical regions 4 . However, although they are useful tools, it is difficult for individual investors to replicate SRI indices.…”

“…4 For a detailed review of studies on the performance of socially responsible indices, see Cunha et al (2020). 5 The possibility of forming portfolios according to different CSR dimensions is one of the advantages of evaluating the effects of socially responsible investing using a synthetic portfolio approach.…”

“…4 4 For a detailed review of studies on the performance of socially responsible indices, see Cunha et al (2020). …”