Socially Responsible Investment: The Performance of Actively Managed ESG Mutual Funds in Scandinavia

Hanne Sund & Emilie-Margareth Nordvik Woldstad

Student thesis: Master thesis


This master thesis aims to contribute to existing and further research on mutual fund management performance. We study the risk-adjusted performance of actively managed ESG mutual funds from the Scandinavian market versus a benchmarking index. Thus, we investigate whether active or passive investing is the superior investment strategy by analyzing 12 carefully selected mutual funds in the time period January 2012 to December 2020. The performance analysis is completed by utilizing the following performance measures: Jensen’s Alpha, Treynor’s Ratio, Sharpe Ratio and Information Ratio, all of which are based upon Modern Portfolio Theory. The general findings suggest that the actively managed ESG mutual funds underperform in relation to the market. However, four funds illustrate that it is possible for actively managed ESG mutual funds to outperform the benchmark, both in terms of absolute returns, as well as risk-adjusted returns. Furthermore, the return on the mutual funds have been controlled against risk factors through the application of traditional asset pricing models, namely the Fama & French 3-Factor Model and the Carhart 4-Factor Model. Our findings are not robust when studying the performance from the mid of 2016 until the end of 2020, as the overall findings suggest that the majority of the mutual funds have performed significantly better on all performance measures. Together with an overall increased explanatory power, this indicates a gradual converge and increasing popularity of holding SRI mutual funds. The final part of this thesis explores the outlook of the financial industry, through an assessment of new regulations and the implications they will have on financial market participants. Our thesis elaborates on the limited literature on the performance of actively managed ESG mutual funds in the Scandinavian market and will contribute to academia of the fast-growing sector of sustainable investments. We are positive that our research contains vital lessons on future debates in the field of active versus passive investing, including the contextual conditions shaping future ESG practices in relation to regulatory impacts.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2021
Number of pages124
SupervisorsKristjan Jespersen