Content area
Full Text
I. Introduction
According to [26] US SIF (2010): The Forum for Sustainable and Responsible Investment, socially responsible investments now account for over 10 percent of all assets under professional management in the USA. Further, since 2005, socially responsible investment assets have grown by more than one-third, while the broader universe of professionally managed assets has remained virtually flat. These numbers confirm that one of the biggest current trends in professional money management is toward investing with a concern for environmental, social, and governance (ESG) issues.
Green investing is the most recent investment niche to emerge from the larger socially responsible investment theme, with more emphasis towards environmental issues. Examples include investments in traditional companies that minimize resource usage in production, companies that produce renewable energy, and firms that produce ecologically friendly products. Although the demand for green investments has grown rapidly, the future of green investing likely depends on its ability to deliver returns that are competitive to benchmark returns.
The purpose of this paper is to address the following issue: do green mutual funds as a group perform as well as the averages of all mutual funds in their respective categories? The paper examines operating characteristics as well as risk and performance measures of all available green mutual funds in the USA over the last 15 years. Operating characteristics include expense ratios, annual turnover rates, and tax cost ratios. Performance measures include average annual returns and return percentile rank in category, risks (measured by standard deviations and betas) and risk-adjusted returns (measured by the Sharpe ratios and alphas).
II. Literature review
Green investing is a relatively new subset of socially responsible investing. As such, there are relatively few studies in the area. Additionally, there is no formal definition of what constitutes a green investment. At this early stage, it is largely a subjective assessment on the part of investors and funds as well. With these considerations in mind this paper first reviews the literature on socially responsible investing before turning attention to those studies exclusively focusing on green investing. [13] Keefe (2007) defines sustainable investing as the integration of ESG factors into financial analysis and decision making, and argues that sustainable investing and socially responsible investing are different. Socially responsible investing, often referred to...