Kassel study: Sustainable investments pay off

The traditional savings account is paying less and less in terms of interest. That's why savers are looking for new ways to invest their money. Sustainable, socially and ecologically compatible shares and funds are becoming increasingly popular. They not only provide a clear conscience, but often also high returns. "The study refutes the prejudice that sustainable funds deliver less performance or are more uncertain than conventional funds," explains Prof. Dr. Christian Klein. "This old wives' tale is simply not true."

For his meta-study, Klein analyzed 35 empirical studies comparing the performance of sustainable funds with that of conventional funds. Unlike previous meta-studies, however, Klein focused not on returns alone, but on the risk-return ratio. "Fifteen studies made no performance difference at all. Only six studies found worse performance of sustainable funds, but 14 studies found better performance," Klein said. Sustainable funds are somewhat less risky than others, Klein said, "This may be related to the fact that companies that focus on sustainability and environmental protection are perceived particularly positively by consumers. They are also often more reliable, meaning they act less risky." The study, which was conducted in collaboration with Miriam Hofmann, will soon appear in the trade journal "Business Research."

"There is an education problem"

Professor Christian Klein explains the fact that sustainable funds are considered underperformers by most investors with a lack of experience in this nevertheless relatively new market segment: "Especially for private investors, sustainably oriented funds seem to be something similar to organic eggs: Somehow they are better from an ethical point of view, but somehow they are more expensive from a financial point of view." However, this assumption cannot be confirmed on the basis of the study's findings; in fact, the opposite is more likely to be the case: "What is important is that, in the case of funds, it is not only the return that is taken into account, but also the risk that is assumed for it. And if you look at the risk-return ratio, sustainable funds are just as good or better than conventional funds."

Sustainable funds, Klein said, select the companies in which to invest based on a variety of environmental, social and governance criteria. In terms of absolute numbers, the proportion of corresponding investments in the market is very high; in Germany, for example, more than 12 billion euros are invested in sustainable funds. In percentage terms, this figure is vanishingly small; less than two percent of the money invested in funds is in sustainable funds. "However, we observe that demand is increasing year by year," says Klein. "The problem that exists right now is an education problem. People think that if they buy a politically correct fund, they are giving their money away, comparable to making a donation. This is not the case."

Image by Prof. Dr. Christian Klein (photo Uni Kassel) at:

www.uni-kassel.de/uni/fileadmin/datas/uni/presse/anhaenge/2014/Klein_Christian_01.jpg

Contact

Prof. Dr. Christian Klein
University of Kassel

Department 07 - Economics
Department of Corporate Finance
Tel: 0561 804-7565
E-mail: klein[at]uni-kassel[dot]de