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Is ethical Investing less profitable? A comparative analysis of ESG and traditional mutual funds
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This thesis aims to investigate the uncertainty surrounding ESG mutual funds and their
profitability compared to traditional mutual funds. By reviewing the current literature and
through the use of a sample of large-cap equity mutual funds, the study analyses four key
performance metrics: Standard Deviation, Beta, Sharpe Ratio, and Alpha to observe how the
two types of funds differ from each other. After conducting a t-test and regression analysis, the
findings reveal no significant difference in volatility between ESG and traditional funds, while
also exhibiting significantly lower Sharpe Ratios and Alphas in ESG funds, suggesting poorer
risk-adjusted returns and underperformance relative to traditional funds. The results of the
research suggest that while ESG funds align with ethical and sustainability goals, they may
come at the cost of lower financial performance while highlighting the need for investors to
balance ethical considerations with financial objectives and calling for greater transparency
and standardisation in ESG reporting to mitigate concerns about greenwashing.
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ESG Mutual funds Performance analysis ESG investing ESG funds Investing Asset allocation Volatility Profitability