Study of the Performance of Sustainable Capital Investments
ResearchCapital investments which focus not only on the level of returns, but also on the "sustainability" of an investment product, are becoming increasingly popular. To cater to this trend, more and more investment funds are being re-issued in order that financial resources can be invested in products which meet certain social, ethical or ecological criteria.
But what price does a capital investor pay for his commitment to sustainable investment products? A current study carried out in collaboration between the Mannheim Centre for European Economic Research (ZEW) and the European Business School (EBS), shows that most equity funds and share indexes which are designed to be particularly sustainable, match up to conventional investment products in terms of performance. Only a few funds and indexes perform significantly worse than the benchmark indexes used in the study (chosen share indexes and funds of a conventional nature).
The ZEW study considers 16 German and Swiss equity funds, 30 equity funds from the US and ten internationally oriented share indexes that represent the value development of sustainable share portfolios. Among the comparatively badly performing indexes were the Calvert Social Index (Calvin), an index specialising in US shares, and the FTSE4Good Index with a pan-European investment gamut. The Dow Jones Sustainability Index (DJSI) with a world-wide investment gamut also fails to match up to benchmark indexes in terms of performance. As a consequence of this, German and Swiss funds oriented by the DJSI World Index perform less strongly. On the contrary, fairly good, but statistically non-significant results were gained for the NAI (Nature Share Index) and the Domini 400 Social Index, which is the US index for socially and ecologically oriented share investments with the longest history (started in 1990). The other five indexes show slightly negative, but not significant differences from benchmark indexes. Most of the funds analysed do not show systematic deviations from the respective benchmarks. This applies to twelve of the 16 German and Swiss funds analysed, as well as to 23 of the 30 US funds. The extent of investment success is therefore higher than one would expect with additional investment restrictions.
In order to determine the performance of investments, two benchmark indexes were used. These were specifically chosen for the respective fund or index; a share index representing shares with high market capitalisation (i.e. the MSCI World Index), and an index for shares with low capitalisation (so-called Small Caps). This was important for analysis as many sustainable funds and indexes have a comparatively high investment proportion in Small Cap shares. Indexes were considered only from their official issuing date in the study. Some indexes are admittedly already available for time periods prior to their issuance date. The value of development, counted back for those time periods, however, is subject to significant upward distortion, therefore promising a performance which cannot actually be achieved.
Sustainable funds permitted in the German-speaking world.
The ZEW Project
"The Relationship Between Environmental Performance and Shareholder Value", was carried out as part of the framework project, "Environment and Sustainability Transparency for Financial Markets" financed by the Federal Ministry of Education and Research. The whole project is conducted by the Institute for Ecology and Business Administration of the European Business School (EBS).
Further Research Projects / Results on Shareholder Value Sustainability
ZEW Research Project
Study
Contact
Prof. Dr. Michael Schröder, Phone: +49(0)621/1235-140, E-mail: schroeder@zew.de