Socially Responsible Fund Performance in Europe

In this paper, I analyze the question of whether European socially responsible mutual funds outperform or underperform conventional funds between 2010 and 2020. Further, I investigate whether the funds have different investment strategies. By employing a matched-pair approach, I match funds based on size and age. I construct three socially responsible portfolios; a pooled socially responsible portfolio, a ESG portfolio and a environmental portfolio. Then, I construct a matched conventional and difference portfolio for each socially responsible portfolio. By applying the Carhart four factor model, I investigate whether there is a difference in performance and investment strategy. To test the robustness of my results I consider management fees, different benchmarks, model specification, sub-periods and ethical rating. My main results show that there is not a statistically significant difference in risk-adjusted performance between socially responsible and conventional funds. Environmental funds underperformed conventional funds between 2011 and 2014, and outperformed between 2017 and 2020. I find that there is a difference in investment strategy between socially responsible and conventional funds; socially responsible funds are more growth-oriented and exposed to large stocks