Performance of Socially Responsible Funds: Do Socially Responsible Equity Funds Generate Significantly Different Risk Adjusted Returns Compared to Conventional Equity Funds?

Alf Andreas Moe Flovik & Marius Hole

Student thesis: Master thesis


The main purpose of investing is usually financial return. However, the socially responsible, or the ethical, aspect of investing, has become increasingly important to many investors. Therefore, it is important to examine whether the returns on socially responsible investments are different from the returns on conventional investments. There are multiple views on this matter. While some investors think socially responsible investing should earn higher returns, others believe it should come at a cost. A third view is that there is no difference. To shed light on this issue, this thesis provides an analysis of the returns on U.S. socially responsible and conventional equity funds over the period January 2010 through December 2019. In order to analyze this, we apply two risk-adjusted measures, the Sharpe and the Treynor ratio, as well as three different factor models, the capital asset pricing model, the Fama-French three-factor model, and the FamaFrench-ESGC four-factor model. The two former factor models are well-established in the literature, while the latter is developed by the authors. The research concludes that socially responsible equity funds do not generate significantly different riskadjusted returns compared to conventional equity funds. However, the specific subgroup of socially responsible funds that applies exclusively a negative screening strategy, does significantly underperform on risk-adjusted return. This adds to the literature.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2020
Number of pages129