Standard or Sustainable - Which Offers Better Performance for the Passive Investor?

Forthcoming, Journal of Applied Finance & Banking, Vol. 11, No. 1, 2021, 61-71

11 Pages Posted: 2 Dec 2020

See all articles by Daniel C Khajenouri

Daniel C Khajenouri

University of St Andrews

Jacob H Schmidt

Regent's University London, Faculty Centre for Applied Finance and Banking

Date Written: November 5, 2020

Abstract

This research report studies the risk-adjusted performance of the major international equity indices against their ESG screened equivalents (MSCI World, MSCI USA, MSCI Emerging Markets, and MSCI Europe). The daily closing prices, returns, standard deviations, and Sharpe ratio characteristics are analyzed from 2013 to 2020. The current literature available from highly rated journals on the subject is also considered, which provided mixed results on the subject matter. We found no academic papers focusing specifically on analyzing the performance of indices and their ESG screened equivalents. With this paper, we intend to fill this gap in the current research available.

We conclude that for the passive investor, choosing ESG screened indices over the conventional equivalent has consistently provided better risk-adjusted returns over the long-term period. These findings are robust with the consistently higher Sharpe ratios over the eight-year period for each index. We predict ESG investments may continue to outperform due to changing retail and institutional investor preferences.

Keywords: Sustainable, Passive, Investment, ESG, Asset, Management, Wealth

JEL Classification: A13, G10, G15, G23, L10, L21, M14, O16, P12, P17, Q20

Suggested Citation

Khajenouri, Daniel and Schmidt, Jacob H, Standard or Sustainable - Which Offers Better Performance for the Passive Investor? (November 5, 2020). Forthcoming, Journal of Applied Finance & Banking, Vol. 11, No. 1, 2021, 61-71, Available at SSRN: https://ssrn.com/abstract=3733811 or http://dx.doi.org/10.2139/ssrn.3733811

Daniel Khajenouri

University of St Andrews ( email )

St Andrews, KY16 9AL
United Kingdom

Jacob H Schmidt (Contact Author)

Regent's University London, Faculty Centre for Applied Finance and Banking ( email )

Inner Circle, Regents Park
London
United Kingdom

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