Socially responsible investing: An assessment of the concept on the Danish market

Adam Norup & Mads Gottlieb

Student thesis: Master thesis


Socially Responsible Investing (SRI) has become a mainstream investment strategy on the major capital markets. Along with this development, the definition of SRI has evolved, and today the concept appears vague and more or less open to interpretation. This thesis investigates the Danish SRI market with the purpose of clarifying, whether the SRI funds are actually being more ethical than conventional funds. Based on the general view, that the constrained investment universe of the SRI funds lead to lower risk-adjusted returns, a performance analysis, in which these funds are being compared to their conventional peers, is conducted. By evaluating and attempting to explain the results, the problem statement of the thesis is sought answered. The analysis consists of 11 Danish SRI funds and 22 conventional funds, whose performance in the period 2001-2011 are compared. This is constructed by using the Cahart (1997) 4-factor model to perform multiple regressions, in order to obtain performance results. The results of the performance analysis results show a slight, but insignificant underperformance by the SRI funds of around 30-50 basis points. This small difference, combined with the statistically insignificance of the results, suggest that there is no signs of Danish SRI funds performing any different than their conventional peers. The second part of the analysis aims to explain the findings by examining three potential SRI performance drivers. First, indications are found, that old SRI funds perform slightly better than young SRI funds. Secondly, it is suggested that an increase in screening intensity has a negative effect on fund performance. Finally, no evidence of SRI stocks being more popular than conventional stocks, were observed. When holding the findings of these three analyses op against the reported performance results, suspicions arise, that the majority of Danish SRI funds are not being particularly more ethically concerned than their conventional peers. Overall, this study shows interesting trends on the Danish SRI market, which questions if a significant difference between SRI funds and conventional funds even exists. This casts doubts on, whether Danish ethical investors get what they are promised.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2011
Number of pages113