Are Sustainable Investment Funds Worth the Effort?

Journal of Sustainable Finance & Investment, 2013

Posted: 16 Jan 2014 Last revised: 20 Jan 2014

See all articles by Daniel Kaltofen

Daniel Kaltofen

Ruhr University of Bochum - Faculty of Economics; BiTS Business and Information Technology School

Laura Mervelskemper

Ruhr University of Bochum - Department of Finance and Banking

Stefan Stein

University of Bochum - Department of Finance and Banking

Date Written: October 8, 2013

Abstract

The eco-efficiency approach (e.g. Schaltegger and Sturm, 1990 and Holliday et al., 2002) suggest an outclassing shareholder value for sustainable investments as a result of more efficient risk and resource management, broader consumer acceptance and legitimation, fewer stakeholder conflicts, a higher level of labour satisfaction and a higher innovation rate. By contrast, modern portfolio theory according to Markowitz (1952) and Sharpe (1963) postulates a limited risk diversification and thus sub-optimal risk-adjusted returns for any less than perfect diversified asset portfolio like sustainable investment funds. Costs for running a firm ‘sustainable’ are supposed to decrease profits and destroy shareholder value even further. However, most previous empirical research found sustainable investment to be priced adequately.

The scope of this study is to validate and update these results for the recent financial crisis from mid-2007 until mid-2011 including both strong bear and bull market climates. Comparing the performance of 47 actively managed German sustainable investments funds with the MSCI World Index as a benchmark, we do not find significant evidence for a mispricing of sustainable investments both during and post the financial crisis. The results underline that investors in German sustainability funds still do not have to sacrifice financial performance. For companies, our findings confirm the effectiveness to use stock markets as a source of capital even in the financial crisis.

Keywords: Normalized Sharpe Ratio, Treynor Ratio, Beta, Financial Crisis, Sustainable Investments

JEL Classification: E44, G01, G11, G12, Q01, Q56

Suggested Citation

Kaltofen, Daniel and Kaltofen, Daniel and Mervelskemper, Laura and Stein, Stefan, Are Sustainable Investment Funds Worth the Effort? (October 8, 2013). Journal of Sustainable Finance & Investment, 2013, Available at SSRN: https://ssrn.com/abstract=2377678

Daniel Kaltofen

BiTS Business and Information Technology School ( email )

Reiterweg 26b
Iserlohn, D-58636
Germany

Ruhr University of Bochum - Faculty of Economics ( email )

Ruhr University of Bochum
Faculty of Economics
Bochum, DE 44780
Germany

Laura Mervelskemper

Ruhr University of Bochum - Department of Finance and Banking ( email )

Universitätsstraße 150
Bochum, 44801
Germany

Stefan Stein (Contact Author)

University of Bochum - Department of Finance and Banking ( email )

Bochum, DE 44780
Germany

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