ESG and Fund Performance Comparing Funds with Different Strategic Benchmarks

Abstract: This thesis aims to identify if there is a positive relationship between ESG and fund performance, and if this relationship is different depending on the strategic benchmark of the funds and how they differ between the given strategic benchmark. Four groups of funds connected to a specific strategic benchmark are divided based on their ESG score into a high ESG score group and low ESG score group. The benchmarks are Euro STOXX 50 TR, MSCI Europe Small Cap TR, FTSE AW/Technology TR and S&P Global Infrastructure TR. To make this analysis, OLS regressions are made with average monthly return as dependent variables and Carhart four-factor model as independent variables over a five year period, April 2018 to March 2023. Sharpe and Treynor ratios were also used as supplements. The results show that there is no clear relationship between ESG and fund performance, where for some benchmark groups the low ESG group is superior to the high ESG, and other benchmarks show the opposite. There are no major differences of the relationship between ESG score and fund performance when comparing the groups with different benchmarks, nor within each set of funds, indicating that there is no clear evidence that a relationship exists.