We evaluate whether sustainability affects portfolio returns for the European equity market for the sample period of 2002 to 2018.The Fama and French 3-Factor Model is extended with factors constructed based on ESG score, industry relative ESG score and the EU ETS cap-and-trade system. The model that best explains portfolio returns is a 5-Factor Model with factors for CAPM, SMB, HML, ESG and Industry ESG. Therefore, both ESG and Industry ESG affect equity portfolio returns on a cross-sectional level. This effect is negative and explained by either a high ESG score not being valued by investors, or by a large share of ESG motivated investors in the market. Furthermore, we find evidence for low ESG stocks behaving like small stocks.
|Educations||MSc in Applied Economics and Finance, (Graduate Programme) Final Thesis|
|Number of pages||106|