Socially Responsible Investments: A Comparative Performance Study of the Scandinavian Mutual Fund Market

Andreas Stang

Student thesis: Master thesis


During the last decade the market for Socially Responsible Investments (SRI) has experienced continuous growth. The SRI equity mutual fund market has grown both in the number of funds and in total Assets under Management (AuM). However, SRI currently lacks a uniform definition in order to consistently label a mutual fund as being an SRI fund. In academia a SRI is classified as an investment which considers certain ethical or responsible non-financial aspects prior to the financial return of an investment. This thesis describes and analyzes the Scandinavian market for SRI mutual funds. This is done to determine whether or not Scandinavian investors pay for their discriminatory investment decision relative to the return from conventional portfolios. Initially an overview of a selected body of academic literature presents the most important previous findings with respect to a range of SRI related topics. Here it is found that the results regarding the performance of SRI mutual funds are mostly non-statistically different from their conventional counterparts. However, some papers indicate underperformance and some indicate outperformance based on the application of certain Environmental, Social and Governance (ESG) filters. The conducted data collection identified a total of 48 SRI equity mutual funds in the three Scandinavian countries. From these funds it was found that 10 of the funds donate fixed amounts of money to charity each year, a tendency which has not been described in the previous literature on SRI covered in this thesis. The analysis is conducted based on 642 Scandinavian equity mutual funds where 48 are classified as SRI funds. These funds are analyzed using the Sharpe ratio to establish the risk return relationship. The Capital Asset Pricing Model (CAPM) and the Fama and French Three Factor model is used to test the hypothesis of whether or not SRI mutual funds under- or outperform their conventional counterparts. The results of this thesis indicate underperformance of Swedish and Danish SRI funds relative to their conventional counterparts. In Norway no statistical difference in return is found when conducting the three factor regression. The importance of treating portfolios equally across borders is raised in the discussion as it is indicated that the implementation of negative filters among Scandinavia SRI funds is very high and this could be an interesting field of future study.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2012
Number of pages90