Robustness of Sustainable Investments

The question whether portfolios with high environmental, social and governance (ESG) ratings are more resistant towards economic downturns than portfolios with low ESG ratings is analysed in this master thesis. Socially responsible investors include non-monetary criteria into their investment decisions but they also expect to earn an adequate return on investment. Therefore it is crucial to know how sustainability criteria are related to financial performance. Two different research approaches were chosen for the examination of the relationship between sustainability and financial performance. On one hand, the prevailing nature of the relationship between sustainability considerations and financial performance is assessed through a comparison of equity portfolios with different levels of ESG awareness over a ten-year period. On the other hand, the influence of sustainability considerations on a portfolio's return volatility is investigated via conditional volatility models. The results obtained imply that good sustainability ratings mostly lead to higher risk-adjusted financial returns and further confirm a positive risk-return relationship of sustainable investments.