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A New Approach to Sustainable and Responsible Investment: The Sustainability-Themed Mutual Funds

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Socially Responsible Investments

Part of the book series: Palgrave Studies in Impact Finance ((SIF))

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Abstract

This research analyzes the risk-adjusted returns and the investment style of sustainability-themed funds, a fast-growing category of sustainable and responsible mutual fund. Sustainability-themed funds are compared with sustainable and responsible mutual funds that implement different approaches in portfolio selection and management, and with thematic funds not involved in responsible investment strategies. The study uses a European sample of 1512 mutual funds where 468 are sustainability-themed funds, 633 are other sustainable and responsible funds, and 411 thematic funds. Monthly performance and fund characteristics are analyzed for the period 2007–2017 using a single factor Capital Asset Pricing Model (CAPM), a Fama and French (1993) 3-factor model, and, lastly, a Fama and French (Journal of Financial Economics, 116: 1–22, 2015) 5-factor model. The analysis is extremely innovative. During the last 15 years, literature about sustainable and responsible investment has focused on the differences in terms of risk and performance between socially responsible and conventional funds. Starting from the methodology applied in previous studies, and in light of their exponential growth in recent years, this paper focuses on sustainability-themed mutual funds. We demonstrate that sustainability-themed funds differ in terms of risk, performance, and investment style from other funds that implement social responsible strategies and from thematic funds focusing on a specific theme, but not responsible investment.

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Notes

  1. 1.

    SMB, HML, RMV and CMA factors relating to European markets were downloaded from the Web site http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html#Developed (downloaded the 30/6/2017).

  2. 2.

    We run the same analysis with DJIA index obtaining similar results. These results are available from the authors on request.

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Author information

Authors and Affiliations

  1. Department of Economics and Management, University of Florence, Florence, Italy

    Federica Ielasi

  2. Department of Business and Law, University of Milano-Bicocca, Milan, Italy

    Monica Rossolini

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  1. Federica Ielasi
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  2. Monica Rossolini
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Correspondence to Federica Ielasi .

Editor information

Editors and Affiliations

  1. Fac di Economia, Dept di Mgmt, Sapienza University of Rome, Rome, Italy

    Mario La Torre

  2. Dipartimento di Economia Aziendale, D'Annunzio University of Chieti–Pescara, Pescara, Italy

    Helen Chiappini

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Ielasi, F., Rossolini, M. (2019). A New Approach to Sustainable and Responsible Investment: The Sustainability-Themed Mutual Funds. In: La Torre, M., Chiappini, H. (eds) Socially Responsible Investments. Palgrave Studies in Impact Finance. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-05014-6_7

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  • DOI: https://doi.org/10.1007/978-3-030-05014-6_7

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  • Print ISBN: 978-3-030-05013-9

  • Online ISBN: 978-3-030-05014-6

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