ESG Investing; Does it come with a Financial Sacrifice?

Sammanfattning: Sustainability issues have been a growing concern in recent years, and as a consequence, the demand for sustainable investments has drastically increased. When considering sustainable investments, common factors taken into account are Environmental, Social, and Governance aspects referred to as ESG. The purpose of this bachelor thesis is to examine the potential disparity in performance and investment risk between sustainable and non-sustainable funds in terms of ESG-scores. Their differences are evaluated by utilizing a portfolio-approach where the most sustainable funds are compared to the least sustainable funds. This research paper is focused on the Swedish market, including a total of 215 funds, in a time period spanning from October 2010 to October 2020. This study's findings suggest that both the sustainable and non-sustainable funds outperformed the market, proxied by the MSCI World Index, in terms of risk-adjusted performance. Furthermore, a significant overperformance could be statistically proven for the non-sustainable funds relative to the sustainable; however, no significant difference in investment risk could be detected. Therefore, this study concludes that ESG investing comes with a financial sacrifice in terms of risk-adjusted performance, but not in financial risk taken.