This thesis aims to examine the financial performance of Scandinavian sustainable mutual funds. The risk-adjusted returns of sustainable funds are compared on a portfolio level with selected conventional funds utilizing a “matched pair” approach. Sustainable investment is a growing market due to an increasing concern of environmental, social and governance issues. There is not a universal definition of sustainable investment, therefore, the fund managers are making subjective decisions in the practical screening process. However, this study applies a pragmatic definition of sustainable investment and totally 80 sustainable funds were collected and matched with 80 conventional funds on portfolio levels. This thesis is based on two contradictory theories that sustainable funds either outperform conventional funds by considering the interests of stakeholders or underperform by investing in a more restricted investment universe. The collected data have been modelled in three regression analysis. The results obtained suggest that there is not a significant difference in risk-adjusted returns between sustainable and conventional mutual funds. An exception is the Norwegian funds, where significant outperformance of sustainable funds in comparison to conventional funds have been detected.
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