Is ESG investing profitable? A comparison between ESG and traditional financial instruments in the Euro-area

Emilia Cavallini

Master's thesis

Abstract:

This Master thesis focuses on ESG investing, trying to answer to the following question: is ESG investing profitable? This topic is of wide importance in recent years, with growing attention of the financial world, as the increasing number of signatories and assets under management of PRI highlight. Its importance is also emphasized by climate change consequences, social inequalities, and corporate scandals. This thesis carries out a quantitative study comparing twenty-five pairs of ESG and non-ESG ETFs, bonds, and funds (chosen by using investing.com) using the Sharpe ratio. The comparison is also made between portfolios of these instruments, using beta, Treynor’s measure and Sharpe ratio as metrics for risk and risk-adjusted returns. The results are that 60% of the ESG instruments and 66,67% of ESG portfolios are more profitable than their traditional counterparties. It can be concluded that ESG investing is profitable when a comparison of ESG and traditional instruments (and portfolios) of the Euro-area is made.

Abstract:

This Master thesis focuses on ESG investing, trying to answer to the following question: is ESG investing profitable? This topic is of wide importance in recent years, with growing attention of the financial world, as the increasing number of signatories and assets under management of PRI highlight. Its importance is also emphasized by climate change consequences, social inequalities, and corporate scandals. This thesis carries out a quantitative study comparing twenty-five pairs of ESG and non-ESG ETFs, bonds, and funds (chosen by using investing.com) using the Sharpe ratio. The comparison is also made between portfolios of these instruments, using beta, Treynor’s measure and Sharpe ratio as metrics for risk and risk-adjusted returns. The results are that 60% of the ESG instruments and 66,67% of ESG portfolios are more profitable than their traditional counterparties. It can be concluded that ESG investing is profitable when a comparison of ESG and traditional instruments (and portfolios) of the Euro-area is made.

Keywords

ESG, investing, Euro-area

Keywords

ESG, Investing, Euro-area

Language used: English

Date on which the thesis was submitted / produced: 28. 4. 2022

Thesis defence

• Date of defence: 1. 6. 2022
• Supervisor: Karel Brůna
• Reader: Kateřina Šímová

Vysoká škola ekonomická v Praze

Master programme:
Finance and Accounting