Sustainable Investing: Effects on Portfolio Returns and Risk in a Nordic Setting

Sammanfattning: ESG investing has gone from niche to mainstream, with the total AUM assigned to ESG-tilted portfolios growing by the day. The objective of this paper is to understand how the return and risk performance of Nordic mutual and exchange-traded funds differ based on sustainability ratings, as there is no consensus in the risk/reward payoff in ESG investing. Previous research indicates that notable differences between so called green and brown portfolios can be seen especially in times of high economic volatility, but the literature is inconclusive. The results in this paper suggest that a higher sustainability score corresponds to lower downside risk for Nordic mutual funds and ETFs, but a higher sustainability score also corresponds to a lower return profile overall. The results are less significant when separating equity portfolios and bond portfolios, however, and the largest differences can be seen when comparing the most sustainable portfolios with others.