Sukuk are an important mode of financing in the Islamic financial system. As usury (interest) is prohibited in Islam, conventional bonds are not suitable for investors in Islamic countries. Since their launch in the 1980s, Sukuk have gained recognition and popularity as a substitute for conventional bonds. However, their unique features mean that Sukuk are not always clearly understood. The aim of this study is to analyse the differences and similarities between Sukuk and conventional bonds in terms of their risk and return characteristics.

ESG investing has been a hot topic during several years and there have been numerousstudies examining the relationship between sustainable assets and non-sustainable assetsincluding green bonds, social bonds, environmental bonds, ESG-bonds and ESG indices;conventional bonds, S&P 500, common stocks and non-ESG indices. During negative marketshocks several ESG stocks and indices have been shown to outperform common stocks andindices. Green bonds demonstrated an asymmetric relationship to other assets providinginvestors with an opportunity for diversification. We’ve looked at the relationship andperformance of sustainable assets and non-sustainable assets by using Markowitz portfoliometrics and Engle Rs’ DCC-GARCH. Our findings propose green bonds and treasuries toprovide hedging and diversification opportunities during crises but demonstrate sustainablefixed income assets to underperform non-sustainable fixed income assets during the COVID19 market shock as opposed to previous studies.

As the world faces unprecedented environmental challenges, there is an urgent need for largescale investments in green infrastructure and technologies. If we are going to achieve carbon neutrality, significant investments are necessary, and therefore must the entire financial system unite and endorse sustainable investment activities in a market-oriented manner.   A green bond is a relatively new type of bond. It was first introduced in 2007 by the European Investment Bank (EIB). This was followed up by a collaboration between Skandinaviska Enskilda Banken (SEB) and the World Bank, a group of Swedish investors, pension funds, and SRI-focused investors. They issued their first green bond in 2008 intending to attract more investors. However, this attempt to increase the interest did not work, green bonds were almost nonexistent until 2013. One explanation for the slow development of the green bond market was the financial crisis in 2008. Further, the reason for the low interest in green bonds during this period was that traditional investors deemed these risky and non-profitable.  Using a deductive approach, this thesis investigates how green bonds perform compared to conventional bonds and stocks from the issuing company. The authors sampled green and conventional bonds from 33 companies that matured from 2018 to 2023. The sample data set contains bonds from Asia, Europe, South America, North America, and Australia. The data was tested using multiple hypotheses.  This thesis sets out to answer the research question: How do green bonds perform compared to conventional bonds and stocks?   The results indicated there is a significant difference between the three asset types. First, the stocks yield higher returns and higher standard deviations than green and conventional bonds. Second, the authors found no evidence for a difference in return thus a significant difference in standard deviation. The results also suggest there is a difference in modified duration, convexity, maturity, and yield to maturity. These findings indicate that green bonds performed better than conventional bonds, especially regarding risk and volatility. Therefore, could green bonds be useful when diversifying a portfolio.  The findings suggested that a portfolio composition that combines the three assets could be in line with both shareholder theory and stakeholder theory. The portfolio theory also provides interesting insights into the potential portfolio optimizations since there are differences between green and conventional bonds. Since no difference in the return was found for green and conventional bonds the authors find no reason to support the idea of herding behavior in the trading of green bonds.  However, the difference in standard deviation is interesting from a behavioral perspective, a lower standard deviation indicates that the green bond experiences lower volatility compared to conventional bonds.