How sustainable investments affects financial performance: Evidence from Scandinavian ETFs

Abstract

We study the difference in financial performance for Scandinavian ETFs with low and high sustainability rating in the period from 2017 to 2022. We further investigate different periods of 2020 to capture the effects of the Covid stock market crash. To measure sustainability, we use the new Morningstar sustainability risk scores. We analyse the difference in ETFs’ performance using tools like Fama-French regression, Sharpe ratio, difference-in-mean analysis, and a long-short portfolio. We generally find a greater financial performance for ETFs with low sustainability risk score, however, the difference is not statistically significant. Following the pandemic, we also find a shift in investor preferences towards social aspects of the corporation.