We are currently in the golden age of sustainable investing much thanks to the increasedimportance of companies acting responsibly and sustainably. ESG reporting practices aredrastically improving globally. However, emerging market equities remain remarkablyunderrepresented compared to developed market equities in institutional investors’sustainability portfolios. One of the most popular sustainable investing practices is ESG investing. Over the years, institutional investors have developed several ESG investingstrategies. A relatively new and upcoming strategy which is expected to growtremendously over the coming years is thematic ESG investing which differentiates itselfcompared to more traditional strategies. To the author’s knowledge, very few studies havebeen conducted comparing the performance of ESG investment strategies against eachother, especially comparing thematic ESG versus more traditional ESG investingstrategies in emerging markets. This study found that emerging market based thematic ESG portfolios built around thetheme of clean energy perform better financially compared to more traditional emergingmarket-based non-thematic ESG portfolios. Hence, answering our stated researchquestion “How do Clean Energy focused thematic ESG investment portfolios performcompared to non-thematic ESG portfolios in emerging markets?”. Thematic clean energyportfolios rebalanced annually and quarterly performed better in almost every aspect(return, risk and risk/return) compared to broader non-thematic ESG portfolios during ourselected 5-year period, indicating that thematic investing may be the better strategy toadopt if investing sustainably in emerging markets. This study also found evidenceindicating that emerging market-based thematic clean energy portfolios may performbetter than their developed market counterpart. These findings should persuade investorsto finally break the norm and allocate more capital towards emerging market equities,unlocking the potential for previously hidden diversification opportunities. By analyzingthe performance differences through the lens of existing financial theories, this studymanages to also break new ground within the field of sustainable investing literatureadding new valuable insights while also challenging already existing financial theoriessuch as the efficient market hypothesis. This is a quantitative comparative study utilizing a deductive approach, where the authorshave created and compared the performance of sustainable equity portfolios in emergingmarkets. The Carhart four-factor model was applied through OLS regression to explainthe excess returns of the portfolios, Monte Carlo simulations were conducted to predictfuture movements of the portfolios while multiple performance metrics such as Sharpe,Sortino, and Treynor were calculated and compared.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:umu-225366 |
| Date | January 2024 |
| Creators | Rydhult, Anton, Lundbäck, Ludwig |
| Publisher | Umeå universitet, Företagsekonomi |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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