Do Sustainable Mutual Funds Offer Protection in Times of Market Instability?

Abstract

Our thesis examines the nancial performance of open-ended mutual funds with a Morningstar Sustainability rating from January 2015 to December 2020. We use four di erent factor models to investigate whether the hypothesis that SRI funds o er protection during times of crisis, such as the COVID-19 pandemic. We distribute the funds based on their level of sustainable investments to see what level of ESG-risk is most pro table on a risk-adjusted basis. Our results indicate that sustainable mutual funds underperform the market portfolio during non-crisis and crisis times, although less in times of crisis.