Responsible Investing's Financial Performance: An Empirical Study of Responsible Investing’s Financial Performance Between 2012-2021

Anton Mathias Støttrup Lindeberg & Lars Rasmus Lindeberg

Student thesis: Master thesis


This research paper aims to investigate whether Responsible Investing impacts the financial performance of portfolio returns using the ESG-related scores as determinants to define Responsible Investing. The data is based on the ESG, ESG Combined, and E/S/G scores from Refinitiv, with the S&P1500 as the index and the sample period being 2012 to 2021, which is further divided into two subperiods. The objective of this research is to determine whether the higher-scoring portfolios, i.e., a portfolio with firms with higher ratings, perform differently from the lower-scoring portfolios when sorted on the ESG-related scores. The paper utilizes alpha, Sharpe-, Treynor-, and Sortino ratio as measures of financial performance, with the alpha being determined through CAPM, Fama-French Three-factor, Carhart, and Fama-French Five-factor models. Portfolios are created using two different sorting and weighting methods, where they are sorted on Absolute and Relative scores, with each portfolio further weighted equally and based on market value.

The findings from the research support the notion that the level of Responsible Investing impacts financial performance, although the relationship is concluded to be time-varying. The full period from 2012 to 2021 suggests that the more Responsible Investing approach yields marginally higher risk-adjusted returns in the long run when looking at the Sharpe-, Treynor-, and Sortino ratios. The findings on the risk-adjusted returns measured by alpha are inconclusive for the periods as their significance varies in the results. An irresponsible investment strategy is, however, shown to outperform in the first subperiod between 2012 and 2016, while the second subperiod supports the findings of the full period while also showing that Responsible Investing provides better downside protection in times of market turbulence. Consequently, the result from this study aligns with previous research that suggests that Responsible Investing’s has an impact on the financial performance although it being a slightly marginal outperformance.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2023
Number of pages158
SupervisorsMarcel Fischer