A comparison between ESG funds and traditional funds from a sustainable perspectiv
Independent thesis Advanced level (professional degree), 20 credits / 30 HE creditsStudent thesis
During recent years many fund managers have merchandised their funds as accounting for “ethical”, “responsible” and “sustainable” criterions during the investment process (the generic term “ESG funds” will be used hereafter). These managers have used this as a marketing tool and claimed that this brings added value to their investors. However, it has been very hard for investors to actually determine if the fund managers have been following these announced “ESG” criterions and strategies. In addition to this there have been a lot of discussions around whether or not funds that incorporate “ESG” criterions during their investment process sacrifice return in order to fulfill their obligations.
During March this year Morningstar launched the first independent rating that aims to evaluate how the underlying holdings in fund, i.e. companies in which the fund own shares, manage environmental, social and governance (ESG) matters. By analyzing the underlying holdings from the aspects mentioned above, Morningstar has been able to aggregate this information into a sustainability measure for funds. This new sustainability measure has been named Morningstar Sustainability Rating™, which is a rating for how sustainable a fund is.
This thesis address questions regarding how ESG funds, or rather funds that market themselves as ESG funds, tend to have different attributes compared to traditional funds in the Nordic countries Sweden, Denmark, Finland and Norway. The specific attributes that has been examined are relative fund flows, total returns, risk-adjusted ratings and sustainability ratings.
The results suggest that ESG funds do not show a difference in Sustainability Ratings compared to traditional funds. Furthermore, it could be verified that ESG funds in some cases generate higher relative fund flows compared to traditional funds. It has also been confirmed that these ESG funds actually outperforms traditional funds from a total return perspective.
Place, publisher, year, edition, pages
2016. , 73 p.
ESG, Environmental, Social, Governance, Sustainable investing, Socially Responsible Investments, SRI, Morningstar
IdentifiersURN: urn:nbn:se:umu:diva-121901OAI: oai:DiVA.org:umu-121901DiVA: diva2:935149
Master of Science in Engineering and Management
Olofsson, Marcus, Senior Lecturer
Arnqvist, Per, Assistant Professor