Socially Responsible Investing: How sustainability can be used as an opportunity to achieve higher returns

Sammanfattning: The purpose of this paper is to investigate the relationship between environmental, social and governance (ESG) work and financial performance. Swedish companies listed on large cap and mid cap at the Nasdaq OMX Stockholm are classified into two different portfolios based on their ESG performance. The classification method is developed for the purpose of this study. One portfolio, the strength portfolio, consists of companies that have included sustainability in their business model, while the other portfolio, the concern portfolio, consists of companies that work with sustainability as philanthropy. To investigate if the portfolios deliver excess return, respectively, they are tested in a Cahart four-factor model. Also, several key-metrics are compared between the portfolios in order to investigate how sustainability work is valued in the market. The results obtained are compared by performing exactly the same tests when the strength and concern portfolios are constructed based on an already existing ESG ranking system, Thomson Reuters Asset4 ESG index. The findings from the study show that companies, which have included sustainability in their business model outperform companies that work with sustainability as philanthropy.