Bachelor Thesis
An Empirical Investigation of ESG Mutual Funds
Performance in the U.S.
University of Amsterdam - Faculty of Economics and Business
BSc Business Administration - Specialization Finance
June, 2022
, Statement of Originality
This document is written by (student name) who declares to take full responsibility for the
contents of this document.
I declare that the text and the work presented in this document are original and that no
sources other than those mentioned in the text and its references have been used in creating it.
UvA Economics and Business is responsible solely for the supervision of completion of the
work and submission, not for the contents.
2
, Abstract
The booming trend toward ethical investment practices has left the question open of
whether sustainability comes at an extra price. This research adds value to the existing
literature by attempting to investigate this issue and empirically assess if there is a
compromise between responsible investing and excess profits. This is done by investigating a
sample of 40 U.S. ESG mutual funds between 2012 and 2022. As a measure of funds’
profitability, Jansen’s alpha is estimated via the CAPM, Carhart's four-factor model and the
Fama-French five-factor model. The results highlight three main points: 1) U.S. ESG mutual
funds generate positive performance, 2) this performance increases over time, and 3) ESG
funds provide protection from the downside risk during crises, as shown by the Covid-19
example. These findings imply that both sustainability- and profit-oriented investors can
benefit from investing in the ESG mutual funds over the long term.
3
, Table of Contents
Statement of Originality 2
Abstract 3
1. Introduction 5
2. Literature Review 7
2.1. Socially responsible investment 7
2.3. The effect of ESG on fund’s performance 8
2.4. Empirical findings from the literature 9
3. Data description and Methodology 11
3.1. Dataset 11
3.2. Descriptive statistics 12
3.3. Models used 12
i. CAPM model 12
ii. Carhart momentum model 13
iii. Fama-French five-factor model 13
iv. Other methodologies and model performance evaluators 14
4. Results 14
5. Discussion 16
5.1. Summary of findings 16
5.2. Implications 16
5.3. Limitations 17
5.4. Suggestions for future research 17
6. Conclusion 18
References 19
Appendix 23
4
An Empirical Investigation of ESG Mutual Funds
Performance in the U.S.
University of Amsterdam - Faculty of Economics and Business
BSc Business Administration - Specialization Finance
June, 2022
, Statement of Originality
This document is written by (student name) who declares to take full responsibility for the
contents of this document.
I declare that the text and the work presented in this document are original and that no
sources other than those mentioned in the text and its references have been used in creating it.
UvA Economics and Business is responsible solely for the supervision of completion of the
work and submission, not for the contents.
2
, Abstract
The booming trend toward ethical investment practices has left the question open of
whether sustainability comes at an extra price. This research adds value to the existing
literature by attempting to investigate this issue and empirically assess if there is a
compromise between responsible investing and excess profits. This is done by investigating a
sample of 40 U.S. ESG mutual funds between 2012 and 2022. As a measure of funds’
profitability, Jansen’s alpha is estimated via the CAPM, Carhart's four-factor model and the
Fama-French five-factor model. The results highlight three main points: 1) U.S. ESG mutual
funds generate positive performance, 2) this performance increases over time, and 3) ESG
funds provide protection from the downside risk during crises, as shown by the Covid-19
example. These findings imply that both sustainability- and profit-oriented investors can
benefit from investing in the ESG mutual funds over the long term.
3
, Table of Contents
Statement of Originality 2
Abstract 3
1. Introduction 5
2. Literature Review 7
2.1. Socially responsible investment 7
2.3. The effect of ESG on fund’s performance 8
2.4. Empirical findings from the literature 9
3. Data description and Methodology 11
3.1. Dataset 11
3.2. Descriptive statistics 12
3.3. Models used 12
i. CAPM model 12
ii. Carhart momentum model 13
iii. Fama-French five-factor model 13
iv. Other methodologies and model performance evaluators 14
4. Results 14
5. Discussion 16
5.1. Summary of findings 16
5.2. Implications 16
5.3. Limitations 17
5.4. Suggestions for future research 17
6. Conclusion 18
References 19
Appendix 23
4
