Does Going Green Pay the Green : a Comparative Performance Analysis of Environmentally Friendly Funds and Conventional Investments

Abstract

As the demand for more environmentally friendly businesses continues to grow, companies are forced to adopt corporate policies and think about both the bottom line and their overall environmental impact. Terms like green and sustainable are used but are loosely defined and similarly do not communicate to shareholders and investors to what extent a company is green or environmentally friendly. This study focuses on three elements to help offer more trenchancy in the green and environmental sector of investments. First, to understand the field, defining green is necessary. Second, a case study will look at both the performance and green efforts that a company has taken. Lastly, an empirical study of sustainable funds will help determine if these funds are feasible investments. Findings resulted in the realization that defining green and sustainable funds can take two approaches; one that is broad and one that is specific. The case study highlights steps that firms are taking to meet the demands of a more environmentally friendly business environment. The findings showed that sustainable investment funds do perform well but are not outperforming the largest mutual funds and exchange-traded funds (ETFs). It was also concluded that sustainable funds are outperforming the historical return of the S&P 500.