Received: 15 June 2019 Revised: 1 September 2019 Accepted: 16 September 2019

DOI: 10.1002/bse.2397

RESEARCH ARTICLE

Can sustainable investments outperform traditional

benchmarks? Evidence from global stock markets

Felipe Arias Fogliano de Souza Cunha1 | Erick Meira de Oliveira2,3 |

Renato J. Orsato4 | Marcelo Cabus Klotzle5 | Fernando Luiz Cyrino Oliveira3 |

Rodrigo Goyannes Gusmão Caiado3,6

1
Research and Strategic Projects Division
Abstract
(DPRE), Brazilian Agency for Research and
Innovation (Finep), Brazilian Ministry of To contribute to overcoming global sustainability challenges, investors have been
Science, Technology, Innovations and
increasingly interested in making sustainable investments and incorporating environ-
Communications (MCTIC), Rio de Janeiro, RJ,
Brazil mental, social and governance (ESG) criteria into their portfolio selection decisions
2
Energy, Information Technology and Services and managerial activities. However, these investors and other agents interested in
Division (DETI), Brazilian Agency for Research
and Innovation (Finep), Brazilian Ministry of sustainable investment need updated and robust information to support their decision
Science, Technology, Innovations and making. We analyzed the performance of several Dow Jones Sustainability Indices
Communications (MCTIC), Rio de Janeiro, RJ,
Brazil (DJSIs) and compared them with their respective market benchmarks from 2013 to
3
Industrial Engineering Department (DEI), 2018. The indices comprise the following regions and countries: the world, the
Pontifical Catholic University of Rio de Janeiro
Asia‐Pacific, Europe, emerging markets and the US. The analysis was conducted based
(PUC‐Rio), Rio de Janeiro, RJ, Brazil
4
Business Administration School of São Paulo
on both classic and modern portfolio metrics. The results suggest that sustainable
(EAESP), Getúlio Vargas Foundation (FGV), São investment performance is still heterogeneous worldwide, but there is a promising
Paulo, SP, Brazil
5
opportunity for investors to obtain superior risk‐adjusted returns in certain regions
Business School (IAG), Pontifical Catholic
University of Rio de Janeiro (PUC‐Rio), Rio de while incorporating sustainable investment practices. The findings are of utmost
Janeiro, RJ, Brazil importance to financial market practitioners, business managers, academics and other
6
Tecgraf Institute of Technical‐Scientific
stakeholders interested in promoting investments, corporate practices and scientific
Software Development, Pontifical Catholic
University of Rio de Janeiro (PUC‐Rio), Rio de knowledge to achieve the Sustainable Development Goals (SDGs).
Janeiro, RJ, Brazil
K E YW O RD S
Correspondence
Felipe Arias Fogliano de Souza Cunha, sustainable investment, environmental, social and governance (ESG), stock markets, sustainability
Research and Strategic Projects Division indices, portfolio performance, Sustainable Development Goals (SDGs)
(DPRE), Brazilian Agency for Research and
Innovation (Finep), Brazilian Ministry of
Science, Technology, Innovations and
Communications (MCTIC), Rio de Janeiro, RJ,
Brazil.
Email: felipefogliano@gmail.com

Funding information
Carlos Chagas Filho Foundation for Research
Support in the State of Rio de Janeiro
(FAPERJ), Grant/Award Number: E‐26/
202.824/2018; Brazilian National Council for
Scientific and Technological Development
(CNPq), Grant/Award Numbers: 306532/
2016‐6 and 408470/2016‐0; Brazilian Coordi-
nation of Improvement of Higher‐Level Per-
sonnel (CAPES), Grant/Award Number: 001

Bus Strat Env. 2019;1–16. wileyonlinelibrary.com/journal/bse © 2019 John Wiley & Sons, Ltd and ERP Environment 1
2 CUNHA
1 | IN T R O DU C T ION
The world faces great environmental, social and economic challenges.
According to the United Nations Sustainable Development Report
(UN, 2018), 11% of the global population lives in extreme poverty.
The number of undernourished people is rising and reached 11% of
the global population in 2016. Twenty‐nine percent of the global pop-
ulation lacks safely managed drinking water supplies, and 61% lacks
safely managed sanitation services. The growth of the GDP per capita
of the least developed countries has sharply decreased. Twenty‐three
percent of the global urban population, i.e., 883 million people, lives in
slums. Greenhouse gas emissions are still rising, making the Paris
Agreement target of 1.5°C costlier and responses more urgent.
To overcome the above‐mentioned challenges, the United Nations
2030 Agenda established 17 Sustainable Development Goals (SDGs).
The SDGs represent a major multilateral effort for the sustainable trans-
formation of global economies. Achieving these goals will require many
initiatives related to the revitalization of partnerships between govern-
ments, the private sector and civil society for sustainable long‐term
investments in critical sectors, particularly in developing countries, as
represented by the seventeenth goal (Caiado, Leal Filho, Quelhas, Luiz
de Mattos Nascimento, & Ávila, 2018). The United Nations Conference
on Trade and Development (UNCTAD, 2014) estimated that US$ 5‐7
trillion per year in public and private investments is necessary to achieve
the SDGs, with approximately 65% of these investments in developing
countries. In these countries, the annual investment gap is US$ 2.5 tril-
lion. To address this gap, sustainable investments, i.e., investments that
consider environmental, social and governance (ESG) challenges in their
portfolio selection and management criteria, are crucial.
In recent decades, sustainable investments have increased steadily
(GSIA, 2019). Nonetheless, the growth has occurred at a rate that does
not allow the achievement of SDGs until 2030. Thus, stock markets
(SSE, 2018), mutual funds (Koellner, Weber, Fenchel, & Scholz, 2005),
banks (Mengze & Wei, 2015; Schrader, 2006), companies (Yadav, Han,
& Rho, 2015), regulators (Haigh & Guthrie, 2010) and other agents inter-
ested in sustainable investing are engaging in and promoting initiatives
to accelerate the growth of these investments. One of the main con-
straints to the acceleration of this rate is the lack of information about
the performance of sustainable investments, especially in stock markets
(UNCTAD, 2014). Investors and other agents interested in sustainable
investments need updated and robust performance analysis to support
their decision‐making processes, which can be performed by academic
research such as ours (Antonakakis, Babalos, & Kyei, 2016). This is one
of the most important research gaps for the sustainable investment
agenda, along with others such as robust conceptualizations of sustain-
able investing. These needs are even more pronounced in developing
countries due to the concentration of research focused on developed
regions (Ferreira, Amorim Sobreiro, Kimura, & Luiz de Moraes Barboza,
2016; Talan & Sharma, 2019).
Stock exchanges have developed new products to stimulate sustain-
able investing. Recent examples include sustainability indices, which
track the performance of companies selected based on ESG criteria
(SSE, 2018). Generally, indices are considered cornerstones of capital
ET AL.
markets. Investors rely on them to gauge the performance of portfolios
and use them as benchmarks for passive investing. Therefore, greater
transparency and guidance on these indices are welcomed to stimulate
investment and ensure that investment strategies are aligned with sus-
tainable practices in global stock markets (European Union High‐Level
Expert Group on Sustainable Finance, 2018).
In light of the above, this work analyzes the performance of sus-
tainable investments in developed and emerging stock markets from
2013 to 2018. We use global, regional and country‐level sustainability
indices as benchmarks and compare their performance with that of
respective market portfolios. The performance analysis is based on
classic return and risk indicators as well as portfolio performance mea-
sures such as Jensen, Sharpe, modified Sharpe, Treynor, Sortino and
Omega. To the best of our knowledge, this is the first work to broadly
analyze the performance of sustainable investments worldwide in
recent years, including not only developed markets but also regions
in which sustainable investments are most needed. In addition, our
analysis is based on performance measures that use different assump-
tions regarding the probability distribution of returns and originate
from different portfolio optimization theories, providing more robust
findings and a better ground for discussion. Our initial hypothesis is
aligned with the conclusions of previous research on the performance
of sustainable investments, i.e., that ESG practices have a positive
impact on investments (Friede, Busch, & Bassen, 2015).
The main contribution of our analysis is that it provides robust infor-
mation on the performance of sustainable investments, which is of par-
amount interest to different stakeholders. For practitioners in the
financial sector, our research reveals opportunities for obtaining risk‐
adjusted returns while mobilizing resources towards sustainable devel-
opment. For business managers, the article sheds light on whether it is
valuable to invest in safer and more secure, inclusive and sustainable
production and to participate in sustainability indices (Miralles‐Quirós,
Miralles‐Quirós, & Nogueira, 2019). For academics, the paper expands
the knowledge frontier on sustainable finance and investment and indi-
cates directions for future research. These contributions are especially
important for the achievement of the following SDGs: SDG 8, con-
cerned with decent work and economic growth; SDG 12, related to
responsible consumption and production; and SDG 17, which involves
partnerships for the goals by including, for instance, means of implemen-
tation such as finance and knowledge sharing.
The rest of the article is structured as follows. Section 2 provides
detailed information on sustainable investments. Section 3 presents
the methods and data. Section 4 presents and discusses the empirical
results. Section 5 concludes the paper and provides directions for
future research.
2 | SUSTAINABLE INVESTMENT
Sustainable investment can be defined as an investment approach that
considers ESG factors in portfolio selection and management (GSIA,
2019). There are several other concepts similar to sustainable invest-
ment, such as ethical investment, socially responsible investment (SRI),
CUNHA ET AL.
responsible investment, green investment, impact investment and ESG
investment, which also aim to incorporate ESG factors into investment
decisions. In the literature, there is still a lack of clarity in relation to
such concepts, which are usually intertwined (Talan & Sharma, 2019).
Eccles and Viviers (2011) showed that the use of these concepts in
academic studies depends on several issues, such as the research area,
region and time horizon. They also argue that this conceptual fuzziness
is not necessarily a bad thing but indicates that this research area is
still in progress.
Investment practices that consider ESG criteria are not recent; they
date back hundreds of years (Schueth, 2003). However, in the litera-
ture, ethical investment was the first commonly used concept to
describe this form of investing. This type of investment has been
observed since the 1970s and is normally carried out by values‐based
institutions, such as churches, charities and non‐governmental organi-
zations. From the 1990s onwards, especially in the US, the emphasis
has shifted to SRI, which is characterized by the combination of social
and environmental goals with financial objectives (Eccles & Viviers,
2011; Sparkes, 2001). SRI includes more proactive strategies than tra-
ditional ethical investing strategies, e.g., the avoidance of so‐called “sin
stocks", i.e., stocks of companies from industries such as tobacco and
gaming (Schueth, 2003; Sparkes, 2001). Due to the prominence of
the social aspect relative to the environmental aspect in the SRI term,
the concept responsible investment started to become popular, espe-
cially in the 2000s with the launch of the United Nations Principles
for Responsible Investment (Daugaard, 2019; Eccles & Viviers, 2011).
In this sense, green investment is used to highlight the environmental
objectives of sustainable investors (Daugaard, 2019). Impact invest-
ment has been often seen as a specific strategy of these approaches.
However, some scholars advocate that impact investment should be
treated as a different type of investment. This is because it is more
proactive and targeted in terms of social objectives, as reflected in dis-
tinct investment focuses and characteristics such as the size of the
invested companies, the investment products and the expected level
of financial returns (Höchstädter & Scheck, 2015). More recently, the
term ESG investing has also been found in the literature. This term
highlights each of the three most important components of sustainable
investing, i.e., environmental, social and governance (Daugaard, 2019),
but presents heterogeneous concepts for investors as it is difficult to
define and standardize (Friede, 2019). To provide a common ground
for discussion, we refer in this article to the concept of sustainable
investment, as proposed by Cunha and Samanez (2013), considering
that this term is more aligned with the most recent and important
effort for global sustainable development, i.e., the 2030 Agenda and
its SDGs. Because of this initiative, investors are increasingly asked
to mobilize the necessary resources to contribute to overcoming the
most important sustainability challenges worldwide (Miralles‐Quirós
et al., 2019; UN, 2015).
From investors' point of view, sustainable investments can not only
contribute to global sustainability but also improve long‐term risk man-
agement and therefore increase expected investment returns (Ararat &
Suel, 2011). Investors interested in sustainable investing commonly
implement the following strategies: (i) negative screening: the
3
exclusion of assets derived from certain sectors, companies or prac-
tices based on specific ESG criteria; (ii) positive (or best‐in‐class)
screening: investment in sectors, companies or projects selected based
on best ESG performance; (iii) norms‐based screening: screening of
investments against minimum ESG standards of business practice
based on international norms; (iv) ESG integration: systematic and
explicit inclusion by investment managers of ESG factors into financial
analysis; (v) sustainability‐themed investing: investment in asset clas-
ses specifically related to sustainability, e.g., clean energy, green tech-
nology or sustainable agriculture; (vi) impact or community investing:
targeted investments aimed at solving social or environmental prob-
lems, where capital is specifically directed to traditionally underserved
individuals or communities and to businesses with a clear social or
environmental purpose; and (vii) corporate engagement and share-
holder action: the use of shareholder power to influence corporate
behavior towards sustainable practices (GSIA, 2019).
The importance of sustainable investments in financial markets has
increased substantially in the last few years due to their contribution
to the rising need to address global environmental, social and eco-
nomic challenges (Krosinsky, 2014). In 2016, US$ 23 trillion (or 26%)
of all professionally managed assets in the world were considered sus-
tainable investments. Both retail and institutional investors are apply-
ing these strategies, but retail investment is growing faster (GSIA,
2019).
There are several international organizations aiming to promote
sustainable investing. The Global Sustainable Investment Alliance
(GSIA) is a collaboration of these organizations and includes represen-
tatives from Europe, the US, Australia, New Zealand, and the Nether-
lands. The United Nations Principles for Responsible Investing (PRI),
the United Nations Environment Finance Initiative (UNEP FI) Princi-
ples for Responsible Banking, the Equator Principles, the World Feder-
ation of Exchanges (WFE) principles, and the United Nations
Environment Program (UNEP) Positive Impact are important initiatives
that have stimulated the incorporation of sustainable investing strate-
gies by investors, financial institutions and stock exchanges.
Stock exchanges are engaging in sustainable investing mainly
through promoting and developing ESG disclosure, training, awareness
raising, and products (SSE, 2018). One of these products is sustainabil-
ity indices, which represent portfolios of shares from local, regional, or
multinational companies selected based on ESG factors (Lubin et al.,
2011). They can be based on broad ESG factors or sector‐specific fac-
tors (WFE, 2010). These indices encourage companies to improve their
ESG reporting to attract sustainable investors, e.g., based on guidelines
such as those from the Global Reporting Initiative (GRI), the Carbon
Disclosure Project (CDP) and the Greenhouse Gas Protocol (GHG Pro-
tocol). They also help asset managers implement their sustainable
investing strategies by providing systematic ESG information on com-
panies and providing opportunities for passive and efficient portfolio
creation (Lubin et al., 2011; SSE, 2018).
Stock exchanges are increasingly offering sustainability indices. In
2018, 35 exchanges from 30 countries offered these indices. Compa-
nies such as Dow Jones, ECPI, FTSE Russell, MSCI, RobecoSAM, Stan-
dard & Poor's, Stoxx, and Thomson Reuters have created several
4 CUNHA ET AL.

sustainability indices comprising country‐specific, regional and global
indices as well as broad or sector‐specific indices, e.g., energy, climate
change, ethical and corporate governance (SSE, 2018). The first sus-
tainability indices were launched in the late 1990s and the early
2000s, e.g., the MSCI KLD 400 Social Index (Cunha & Samanez,
2013). The majority of the sustainability indices were launched only
in the second half of the 2000s (Fowler & Hope, 2007; SSE, 2018).
This allowed a growing amount of data to be available to investors
and other stakeholders, although the data are still mostly related to
developed economies (Vives & Wadhwa, 2012).

TABLE 1 Studies about the performance of sustainability indices versus stock benchmarks

Main performance measure Overall

Geographic coverage Index or family index or model results Source Citations

US MSCI KLD 400 Social Index Sharpe and Jensen Neutral Sauer (1997) 392
US MSCI KLD 400 Social Index Jensen and eSDAR Positive Statman (2000) 998
Global, Australia, Canada, DJSI, FTSE4Good, ASPI, Sharpe, single‐equation Mixed Schröder (2007) 328
Europe, Sweden, UK Calvert Social Index, models and multi‐
and US Jantzi Social Index, MSCI equation tests
KLD 400 Social Index and
others
Global, Americas, Asia‐ FTSE4Good, ASPI, Ethibel GARCH and GJR models Mixed Hoti, McAleer, and 27
Pacific, Europe, UK and Indices, Calvert Social Pauwels (2007)
US Index, and Ethical Index
Europe DJSI Sharpe Positive Consolandi, Jaiswal‐ 187
Dale, Poggiani,
and Vercelli (2008)
Global, Europe, UK and FTSE4Good Sharpe, Treynor and Jensen Positive Collison, Cobb, Power, 129
US and Stevenson
(2008)
Japan, UK and US DJSI, FTSE4Good and Markov switching model Neutral Managi, Okimoto, 61
MS‐SRI and Matsuda (2012)
Asia‐Pacific DJSI State‐space market model Neutral Ortas, Burritt, and 40
Moneva (2013)
Brazil ISE State‐space market model Mixed Ortas, Moneva, and 40
Salvador (2012)
Brazil ISE Sharpe, Treynor, Sortino Mixed Cunha and Samanez 46
and Omega (2013)
Global and Islamic countries DJSI CAPM, Fama and French Neutral BinMahfouz and Kabir 36
Hassan (2013)
Spain FTSE4Good Multivariate GARCH Positive Ortas, Moneva, Burritt, 14
and Tingey‐Holyoak
(2013)
Global, Europe, UK and US FTSE4Good Sharpe, Treynor, Jensen Mixed Belghitar, Clark, and 54
and MCSD Deshmukh (2014)
Global, Asia‐Pacific, Europe DJSI Sharpe, augmented market Mixed Lean and Nguyen 44
and North America and exponential GARCH (2014)
models
Korea DJSI Sharpe, extended market Positive Ang (2015) 15
model, GARCH,
exponential GARCH and
threshold GARCH
China, India, Japan, Korea, DJSI, MSCI ESG and Sharpe, Jensen, single‐ and Neutral Ur Rehman, Zhang, 7
Taiwan, Hong Kong, Shanghai Social multi‐factor models Uppal, Cullinan, and
Malaysia and Thailand Responsibility Index Naseem (2016)

Notes. (1) The “overall results” column illustrates the average relative performance of the assessed sustainability indices when compared with selected
benchmarks. The “mixed” overall results classification concerns studies that found one or more positive, neutral or negative return‐risk performance find-
ings. (2) Citations on Google Scholar. ASPI: Advanced Sustainable Performance Index; CAPM: Capital Asset Pricing Model; DECO‐FIAPARCH: Multivariate
Dynamic Equicorrelation‐Fractionally Integrated Asymmetric Power Autoregressive Conditional Heteroscedasticity; DJSI: Dow Jones Sustainability Index;
eSDAR: Excess Standard‐Deviation‐Adjusted Return; GARCH: Generalized Autoregressive Conditional Heteroscedasticity; GJR: Glosten, Jagannathan
and Runkle; ISE: Brazilian Corporate Sustainability Index; MCSD: Marginal Conditional Stochastic Dominance; MS‐SRI: Morningstar Socially Responsible
Investment Index; MSCI: Morgan Stanley Capital International.
CUNHA ET AL.
Many studies have used data from sustainability indices to assess
the performance of sustainable investments worldwide. These studies
can be divided into three main groups according to their aim: (i) stock
benchmark comparison, (ii) assessment of the companies listed in the
indices, and (iii) information transition. Studies from the first group
analyze the sustainability indices by comparing their portfolio perfor-
mance with conventional stock benchmarks. Studies from the second
group analyze the performance of companies listed in sustainability
indices considering financial, economic and ESG aspects. Studies from
the third group analyze the information transition across the perfor-
mance of sustainability indices and/or non‐stock benchmarks, usually
with the aim of international diversification.
Considering that our research falls under the first category, we
summarized important information from the most recent and most
cited papers of this group based on inquiries on Scopus and Web of
Science (Table 1). The pioneering studies of this group evaluated the
performance of sustainable investments in the US stock market using
the MSCI KLD 400 Social Index (Sauer, 1997; Statman, 2000). They
used classic portfolio performance measures, such as Sharpe and
Jensen, and found that the sustainability index either outperformed
or performed similarly to its benchmark. In the 2000s, with the launch
of more sustainability indices, other important articles were published,
such as Schröder (2007) and Consolandi et al. (2008). They also mainly
relied on classic performance measures, found positive, neutral or
mixed results, and focused on developed regions or countries. In the
2010s, due to the growing availability of data on sustainability indices,
another relevant body of research emerged. Some of these studies
assessed a wide range of sustainability indices in developed regions
(Belghitar et al., 2014; Lean & Nguyen, 2014), but others focused on
developing countries (Ang, 2015; Cunha & Samanez, 2013; Ur Rehman
et al., 2016). Their results corroborated previous findings; however,
they used new performance measures and econometric models, such
as the Omega ratio and variance derived from autoregressive condi-
tional heteroskedasticity models.
The second group of studies primarily used event studies to evalu-
ate the impacts on companies' financial performance related to the
inclusion, exclusion or maintenance of companies in indices’ portfolios
based on measures such as return on assets (ROA) and return on
equity (ROE) (Cheung, 2010; Cheung & Roca, 2013; Clacher &
Hagendorff, 2011; Curran & Moran, 2007; Hawn, Chatterji, & Mitchell,
2018; Robinson, Kleffner, & Bertels, 2011). These studies mainly used
DJSI and FTSE4Good data from developed regions and countries and
found neutral, positive or mixed impacts regarding the participation
of companies in the sustainability indices. However, some studies used
different methods and/or assessed several other dimensions of com-
pany performance. Lourenço, Branco, Curto, and Eugénio (2011)
assessed the financial performance of North American companies
listed in the DJSI for long periods and compared them with other com-
panies not listed in the sustainability index. They found that corporate
sustainability practices contributed to shareholder value creation in
that region. In the same vein, Charlo, Moya, and Muñoz (2013) and
Miralles‐Quirós, Miralles‐Quiros, and Arraiano (2017) assessed the
financial performance of European companies listed and not listed in
5
the DJSI and FTSE4Good. Both studies also found positive relation-
ships between sustainability and share value. However, López, Garcia,
and Rodriguez (2007) found that in the European case, there was a
short‐term negative impact on financial performance in the first years
of their analysis period, i.e., 1998–2004. Orsato, Garcia, Mendes‐Da‐
Silva, Simonetti, and Monzoni (2015), based on a literature review,
found scant evidence that companies listed in the Brazilian Corporate
Sustainability Index (ISE) created share value. Finally, Schrippe and
Ribeiro (2019) assessed the ESG performance of companies listed in
the ISE and found a management inefficiency of sustainable Brazilian
companies regarding the social dimension.
The studies comprising the third group are more recent and have
used econometric models to evaluate the integration of sustainability
indices' performance with other sustainability indices and/or non‐
stock benchmarks. Roca, Wong, and Anand Tularam (2010), Tularam,
Roca, and Wong (2010) and Miralles‐Quirós and Miralles‐Quirós
(2017) evaluated price and volatility linkages between several DJSIs,
mostly in developed regions and countries. The authors found differ-
ent degrees and characteristics of correlations between the analyzed
indices' performance, contributing to the optimization of sustainable
investment portfolios. Giannarakis, Partalidou, Zafeiriou, and
Sariannidis (2016), De Oliveira, Cunha, Cyrino Oliveira, and Samanez
(2017) and Mensi, Hammoudeh, Al‐Jarrah, Sensoy, and Kang (2017)
assessed the relationship between the performance of sustainability
indices in both developed and developing regions and countries and
the performance of other non‐stock indicators such as crude oil prices,
US T‐bills, gold, the dollar and consumer sentiment. The authors found
a relevant influence of these indicators on the performance of the
assessed sustainability indices, which should be considered by sustain-
able investors.
3 | METHODS AND DATA
As mentioned in the previous section, there are several sustainability
indices worldwide. To achieve the aim of our research, we selected
one global index, three regional indices and one country‐level index
from the Dow Jones Sustainability Index (DJSI) family (Table 2). They
measure the performance of a portfolio comprising stocks of compa-
nies within a wide range of industries. The companies were selected
based on broad ESG criteria and a best‐in‐class approach. The DJSIs
have a representative market value and are all constructed according
to the same methodology. Additionally, most indices from the DJSI
family have a decent amount of available data, can be found in the
same currency, enfold comprehensive ESG coverage and can be com-
pared with standardized market indices (S&P Dow Jones Indices,
2019). The Asia‐Pacific, Europe and US indices comprise only compa-
nies from developed countries, while the emerging markets index
encompasses only companies from developing countries. The global
index is composed of companies from both types of countries
(Figure 1).
To analyze the performance of the selected indices, we relied on
classic return and risk indicators and on several portfolio performance
6 CUNHA ET AL.

TABLE 2 Selected Dow Jones Sustainability Indices

Related Number Market value (US

Geographic Sustainability market of Number of $ Launch
coverage index index countries companies billion) year

Global W1SGI W1DOW 29 315 10,279 1999

Asia‐Pacific P1SGI P1DOW 6 151 2,204 2009
Emerging DJSEMUP W5DOW 14 94 1,047 2013
Markets
Europe DJSEURD E1DOW 14 147 3,576 2010
US AASGI DJUS 1 125 7,780 2005

Reference date: 12/31/2018. Source: S&P Dow Jones Indices (2019).

FIGURE 1 Countries associated with companies that comprise the selected Dow Jones Sustainability Indices
Source: Made by the authors based on S&P Dow Jones Indices (2019)

measures, such as the Jensen (Jensen, 1968), Sharpe (Sharpe, 1966),
modified Sharpe (Chuang, Chiu, & Edward Wang, 2008; Dowd,
1999), Treynor (Treynor, 1965), Sortino (Sortino & Price, 1994), and
Omega (Keating & Shadwick, 2002a, b) ratios (Table 3). These metrics
were chosen for four reasons. First, they provide key information on
portfolio performance and consider different assumptions regarding
return probabilities. Second, they are based on different portfolio the-
ories, allowing for an unbiased view of portfolio performance. Third,
they evaluate the performance of portfolios considering a wide range
of risk indicators, which can be useful for investors with different
risk‐aversion levels. Finally, the selected set of metrics mixes ubiqui-
tous ratios used by financial market practitioners, such as Jensen and
Sharpe, and more sophisticated measures, such as Omega and the
modified Sharpe.
Jensen's measure, also known as Jensen's alpha or ratio, calculates
the excess return that a portfolio generates over the security market
line (SML). More specifically, the measure is equivalent to the alpha
of the portfolio obtained by the Capital Asset Pricing Model (CAPM)
and thus focuses on non‐diversifiable risk. The Sharpe ratio represents
the excess return of a portfolio over risk‐free assets by unit of total
risk, which is gauged by the standard deviation of the portfolio. The
modified Sharpe ratio differs from its traditional counterpart in that
it considers value at risk (VaR) as the risk indicator. The use of VaR,
especially historical VaR, offers several advantages over traditional
measures of risk. First, it measures downside risk, which is interesting
to risk‐averse investors. Second, it can be used for non‐normally dis-
tributed assets, which is often the case in most financial markets.
Finally, the metric is widely recognized by both academics and practi-
tioners (Favre & Galeano, 2002). The Treynor measure depicts the
same differential return of a portfolio by the unit of risk of the
assessed portfolio, but it considers the systematic risk or beta. We
use these terms interchangeably in this paper because they represent
the same core idea, i.e., market exposure. We emphasize, however,
that they are indeed different measures: the systematic risk of an
index is equal to its beta times the volatility of the market benchmark
(often gauged by its standard deviation). The Sortino index represents
the differential return of a portfolio by unit of downside risk, which
considers only the portfolio's probability of incurring a return inferior
to that acceptable by the investor (Rmin). Finally, the Omega measure
is defined as the ratio between the probability of a portfolio obtaining
a return superior to a minimum expected return and the probability of
obtaining a return inferior to it. The Omega measure reflects all of the
statistical properties of the returns distribution and is not based on the
mean–variance framework. Therefore, like the modified Sharpe, it
does not require the assumptions of the other measures, i.e., a qua-
dratic utility function of the investors and the normality of the assets'
returns distribution.
The analysis period spans from January 1st, 2013, to December
31st, 2018. The initial date is the year in which the most recent
selected index, i.e., DJSI Emerging Markets, first completed a full year
of daily observations. The selected period covers 1,565 daily price
(USD) observations. All series were scaled to equal 100 on January
1st, 2013. The data on most of the DJSIs and their respective market
benchmarks were downloaded from the S&P Dow Jones Indices
(2019) portal. The data on the remaining indices were collected using
an external tool, Thomson Reuters DataStream. Finally, data for the
proxy representing the risk‐free rate of return were retrieved from
the US Department of the Treasury (2019) website. All data, as well
CUNHA ET AL. 7

TABLE 3 Classic return and risk indicators and portfolio performance 4.1 | Analysis based on classic return and risk
measures indicators
Indicator/measure Equation
Table 4 depicts the results based on the classic return and risk indica-
(a) Classic return and risk indicators
  tors for each year of the analysis period and for the whole selected
Return

Ri;T ¼ ∏ 1 þ Ri;t − 1 timespan, e.g., from 2013 to 2018. Figure 2 and Figure 3, respectively,
t
rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi illustrate the daily performance and the total performance of the
Standard deviation h
2 i
σi;T ¼ E Ri;t −Ri;T ×n indices.
In the total period, the global sustainability index underperformed
(b) Portfolio performance measures
its benchmark in terms of both return (lower outputs) and risk (higher
Jensen JM = Ri,T − (R f ,T+βi,T(Rm,T − R f ,T))
volatilities). The overall return increase was 27.75% for the former and
Sharpe ShMi,T = (Ri,T − R f ,T)/σi,T 34.85% for the latter. The global sustainability index presented a stan-
Modified Sharpe MShMi,T = (Ri,T − R f ,T)/VARi,T dard deviation of 29.63%, against 26.08% of its market benchmark.
Treynor TMi,T = (Ri,T − R f ,T)/βi,T Similar return and risk patterns for these indices were observed by
Sortino SoMi,T = (Ri,T − R f ,T)/σDRi,T Lean and Nguyen (2014), from 2004 to 2013.
Omega b In the Asia‐Pacific region, the sustainability index also presented
∫ ½1 − F ðxÞdx inferior return and risk performances relative to the respective mar-
Rmin
Ωi;T ðRmin Þ ¼ Rmin ket portfolio. However, in this region, the DJSI provided a very low
∫ F ðxÞdx
a return for the total period when compared with its benchmark
(0.79% vs. 17.24%). The return of the former was even inferior to
Ri,T is the return of index i in period T; Ri,t is the return of index i in day t; σi,
the risk‐free rate of return (3.02%). The relative underperformance
T is the standard deviation of the index return in period T; Ri;T is the index
average return in period T; n is the number of daily return observations in of the sustainability index was more pronounced in 2017 (18.86%
period T; JMi,T is the index Jensen measure in period T; R f ,T is the risk‐free vs. 28.71% for the market benchmark). In this year, stock markets
rate of return represented by the 4‐week US Treasury bill (T‐bill) rate in
in South Korea and Japan presented far superior performance in
period T; βi,T is the index systematic risk in period T, which is given by
σim,T/σm,T2, considering that σim,T is the covariance between Ri,T and Rm,T
the region. Therefore, the performance of these countries' stock mar-
(the return of the market portfolio in period T) and that σm,T is the standard kets may have strongly influenced the Asia‐Pacific market index in
deviation of the latter in period T; ShMi,T is the index Sharpe measure in this year and in the total period. This suggests that sustainability‐
period T; MShMi,T is the index modified Sharpe measure in period T; VARi, driven companies have not yet been leveraged in several parts of
T is the index historical value at risk in period T; TMi,T is the index Treynor
the Asia‐Pacific region. The volatilities of the shares from
measure in period T; SoMi,T is the index Sortino measure in period T; σDRi,T
is the downside risk of the index return in period T, which is given by sustainability‐committed companies in the Asia‐Pacific were also
qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi

 2
E MIN 0; Ri;t −Rmin , considering that Rmin is the minimum expected
higher than those that comprised the market benchmark (35.82%

return by the investor; Ωi,T(Rmin) is the index Omega measure in period T,
for a minimum expected return of Rmin; and F (x) is the cumulative distribu-
tion function of the index daily returns defined by the interval [a,b] (in our
case [−∞, +∞]), throughout period T.
as the step‐by‐step procedures for collecting them and performing
necessary transformations for subsequent analysis, can be found in
the Supplementary Information. Alternatively, interested readers can
refer to the dataset made available online through the Mendeley Dig-
ital Repository (Cunha et al., 2019). We used R Software (R Core Team,
2019) and related packages to compute all the indicators and mea-
sures. Further details on the data handling and calculation can be pro-
vided upon request.
4 | R E S U L T S AN D D I S C U S S I O N
This section is divided into four subsections. In the first, we analyze
the sustainability indices based on classic return and risk indicators.
In the second, we further assess the performance of the sustainability
indices based on portfolio performance measures. In the third, we pro-
vide robustness checks of our results. Research limitations are then
presented in the last subsection.
vs. 31.15%).
In the total period, both sustainability and market indices pre-
sented the highest returns in the US compared with all other regions.
The return of the US sustainability index was slightly inferior than
that of its market benchmark (72.02% vs. 74.01%). However, the
two indices presented very similar risk patterns, with standard devi-
ations of 32.08% for the former vs. 31.76% for the latter. This
shows that in the US stock market, sustainable investing may have
become part of mainstream investment practices, as suggested by
Krosinsky (2014).
Despite the underperformance of the sustainability indices
reported above in the total period, in Europe, the sustainability index
outperformed its benchmark in terms of return (7.08% vs. 6.88%)
and presented a very similar risk pattern (37.41% vs. 36.98%). In
emerging markets, the sustainability index also outperformed its mar-
ket benchmark in terms of return (‐0.68% vs. ‐3.88%), even in a
period marked by economic turmoil in involved countries, e.g., the
2015 Chinese economic downturn and the 2014‐2016 Brazilian
recession. However, the former was riskier than the latter (37.57%
vs. 33.83%). The superior return of sustainable investments in these
regions may be associated with policies and regulations regarding
sustainable investing. The European Union requires pension funds
8 CUNHA ET AL.

TABLE 4 Return and standard deviation of the indices (% per annum and total) from 2013 to 2018

2013 2014 2015 2016 2017 2018 Total

Index R σ R σ R σ R σ R σ R σ R σ

(a) Global
Sustainability 19.35 11.43 ‐1.05 9.74 ‐6.66 14.05 4.68 16.07 24.18 6.98 ‐10.84 12.14 27.75 29.63
Market 20.77 9.74 2.12 8.78 ‐4.02 12.73 5.86 12.77 21.80 5.71 ‐11.68 12.23 34.85 26.08
(b) Asia‐Pacific
Sustainability 12.39 15.25 ‐6.24 12.45 ‐3.49 16.06 0.02 19.34 18.86 9.46 ‐16.64 13.24 0.79 35.82
Market 10.25 13.15 ‐1.67 10.63 ‐2.68 14.16 2.30 15.88 28.71 7.41 ‐15.61 13.26 17.24 31.15
(c) Emerging Markets
Sustainability ‐9.99 14.18 2.30 14.67 ‐20.47 18.43 17.27 19.77 21.88 9.47 ‐5.05 13.20 ‐0.68 37.57
Market ‐2.99 12.73 ‐2.67 10.95 ‐15.88 16.18 8.42 16.07 32.30 8.66 ‐15.66 14.56 ‐3.88 33.03
(d) Europe
Sustainability 20.95 15.10 ‐7.61 12.57 ‐5.46 17.42 ‐2.63 21.08 21.41 9.45 ‐14.25 13.29 7.08 37.41
Market 23.45 14.48 ‐7.91 12.41 ‐4.14 17.10 ‐3.52 20.84 23.15 9.17 ‐17.45 13.87 6.88 36.98
(e) US
Sustainability 27.20 10.69 10.75 11.29 ‐3.52 16.96 11.48 13.46 19.71 6.77 ‐5.17 17.51 72.02 32.08
Market 30.32 11.26 10.74 11.53 ‐2.83 15.41 12.54 13.36 19.16 6.89 ‐7.46 16.87 74.01 31.76
(f) Risk‐free rate of return
US T‐bill 0.05 0.00 0.03 0.00 0.03 0.00 0.25 0.00 0.83 0.01 1.80 0.02 3.02 0.10

to provide public information regarding whether and how they
consider ESG factors in their investment decisions (European Union
High‐Level Expert Group on Sustainable Finance, 2018). In emerging
markets, e.g., Brazil, Chile and Colombia, similar requirements for
pension funds and national banks were observed (GSIA, 2019).
The superior returns in emerging markets may also be associated
with investors' preference to promote positive
environmental impact in such markets rather than in developed ones
(GIIN, 2018).
One can also observe different performance patterns of the sus-
tainability indices in the beginning and at the end of the analysis
period. In 2018, all sustainability indices presented higher returns
when compared with their market benchmarks (with the exception
of the Asia‐Pacific) and delivered lower volatilities (with the exception
of the US). On the other hand, in 2013, sustainable investments pre-
sented higher returns only in the Asia‐Pacific, and only in the US
was the sustainability index less volatile. Moreover, the first three‐year
period of the analysis (2013‐2015) was marked by the end of a boom-
ing market across the world and the beginning of financial turmoil
mainly due to the slowing of Chinese GDP growth, the fall of commod-
ities prices and global liquidity shrinkage (Ahmed & Huo, 2019; Zhao,
Chen, & Zhang, 2019). During these years, the sustainability indices
consistently presented inferior returns and higher volatilities. These
facts may indicate that in periods of crisis, sustainable investments
present inferior return‐risk profiles. Lean and Nguyen (2014) found
similar results in the global financial crisis from 2008 to 2009 regarding
the volatility of the sustainability indices.
4.2 | Analysis based on performance measures
Table 5 provides the results based on the selected performance mea-
sures for the whole period, and Figure 4 illustrates the betas of the
indices used to calculate the Jensen and Treynor measures. The out-
puts of the Sharpe, modified Sharpe, Treynor and Sortino measures
social and were not valid for the Asia‐Pacific or emerging markets regions
because they presented negative excess returns in relation to the
risk‐free rate of return, either for the sustainability indices or for
their market benchmarks. For the Sortino and Omega measures, we
used ‐1.0%, 0.0% and 1.0% as the minimum expected returns consid-
ering that on average, the probability of the indices' returns falling
between ‐1.0% and 1.0% was representative, i.e., 81.4% (Supporting
Information). We computed the modified Sharpe ratio using both
95% and 99% historical VaR. These thresholds were chosen mainly
to provide a basis of comparison with previous studies addressing
similar topics, in which most inferences were drawn considering
these VaR levels.
The results in terms of Jensen's alpha are quite different across
regions. On the one hand, they indicate that the global sustainability
index did not earn its required return when compared with the risk‐
adjusted returns derived from the CAPM. This can also be noted for
the Asia‐Pacific sustainability index. On the other hand, the same met-
ric suggests the possibility of earning excess risk‐adjusted returns by
investing in sustainability indices in the European and emerging mar-
kets and particularly in the US. Specifically, in the US, the considerable
superiority alpha is related to the very low systematic risk (0.11)
CUNHA ET AL.
FIGURE 2 Daily performance of the indices from 2013 to 2018. Bases fitted for 100 points on January 1st, 2013 [Colour figure can be viewed at
wileyonlinelibrary.com]
(Figure 4), which was also found by Lean and Nguyen (2014) in the
DJSI for the North American region.
Based on the Sharpe and Treynor measures, the global sustainabil-
ity index underperformed when compared with its market benchmark
(0.835 vs. 1.221 and 0.229 vs. 0.0318, respectively). This result is due
to its relatively high total risk indicated in Table 4 (29.63%) and its sys-
tematic risk shown in Figure 4 (1.08). In Europe, the Sharpe result of
the DJSI was slightly superior to its market benchmark (0.109 vs.
0.104). The beta of the European sustainability index was equal to
one, which shows that in Europe, sustainable investments do not
impose more or less volatility than mainstream investments. This might
be associated with the fact that sustainable investments in Europe
constitute a substantial share of the total professionally managed
assets, i.e., 49% (GSIA, 2019). Considering this systematic risk charac-
teristic and the superior return of the sustainability index in Europe
(Table 4), sustainable investments had a superior result based on the
Treynor measure (0.041 vs. 0.039). In the US, the sustainability index
9
had slightly inferior performance to its benchmark based on the
Sharpe measure (2.151 vs. 2.235) but considerably higher performance
based on the Treynor measure (6.268 vs. 0.710). This is because the
US sustainability index presented a very low systematic risk, as men-
tioned before.
The results regarding the modified Sharpe ratios are in line with the
inferences drawn above from the traditional Sharpe measure. In rela-
tive terms, modified Sharpe ratios are still higher for market bench-
marks when compared to sustainability indices in the US and on the
global scale and lower in Europe. In absolute terms, however, as larger
percentages of VaR are taken into account, the overall difference
between sustainability and market measures decreases. This suggests
that even though standard deviations are usually higher for sustain-
ability indices, when using more “realistic” measures of risk (in the
sense that the measures consider the non‐normal distribution of the
returns), the differences between sustainability indices and their mar-
ket benchmarks are less prominent.
10 CUNHA ET AL.

FIGURE 3 Total performance of the indices from 2013 to 2018 [Colour figure can be viewed at wileyonlinelibrary.com]

TABLE 5 Performance of the indices based on Jensen, Sharpe, Treynor, modified Sharpe, Sortino and Omega measures from 2013 to 2018

MShM per VaR SoM per Rmin Ω per Rmin

Index JM ShM TM
95% 99% ‐1.0% 0.0% 1.0% ‐1.0% 0.0% 1.0%

(a) Global
Sustainability ‐0.096 0.835 0.229 0.494 0.306 2.512 1.139 0.511 12.033 1.128 0.073
Market 0.000 1.221 0.318 0.741 0.404 3.970 1.657 0.686 14.640 1.175 0.056
(b) Asia‐Pacific
Sustainability ‐0.178 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 8.070 1.053 0.115
Market 0.000 0.457 0.142 0.282 0.160 1.391 0.623 0.288 11.512 1.131 0.084
(c) Emerging Markets
Sustainability 0.034 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6.690 1.030 0.137
Market 0.000 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 8.473 1.095 0.097
(d) Europe
Sustainability 0.002 0.109 0.041 0.071 0.039 0.282 0.149 0.077 8.185 1.068 0.130
Market 0.000 0.104 0.039 0.066 0.039 0.271 0.143 0.073 8.439 1.067 0.134
(e) US
Sustainability 0.612 2.151 6.268 1.262 0.733 6.286 3.005 1.424 11.096 1.185 0.102
Market 0.000 2.235 0.710 1.322 0.749 6.590 3.103 1.469 10.820 1.199 0.104

Notes: (1) ShM, TM and MShM results for the Asia‐Pacific and emerging markets indices (sustainability or market) are not depicted because they presented
negative differential returns (a methodological limitation of these measures). (2) Results for the risk‐free rate of return are not shown because they were
either null or invalid

Turning to the Sortino results, the global and US sustainability indi-
ces did not present superior performance to their benchmarks for any
of the minimum expected returns. This is consistent with their return
and risk characteristics (Section 4.1). In Europe, however, the sustain-
ability index had superior performance for all minimum expected
returns. This shows that the superior risk‐adjusted returns of sustain-
able investments in the region are appropriate for all types of
investors.
Finally, as for the Omega measure, when higher minimum returns
are expected, sustainability indices presented either superior or very
similar performances. Our findings add to the discussion on the perfor-
mance of sustainability indices by suggesting that in recent years, they
have globally had satisfactory performance for risk‐averse investors.
These results differ from those presented by Belghitar et al. (2014),
who also relied on methods that do not take into account assumptions
regarding investors' utility function and assets' returns distribution to
CUNHA ET AL. 11

evaluate sustainable indices. The authors assessed the performance of

FTSE4Good indices at different levels, from 2001 to 2010, under a
Marginal Conditional Stochastic Dominance (MCSD) framework. How-
ever, they found that sustainability indices presented worse perfor-
mance for risk‐averse investors. The difference can be linked to a
wide range of criteria, such as period of analysis, indices' screening
processes or research methodology.

4.3 | Robustness tests

For robustness checks, i.e., to ascertain whether the observed results

FIGURE 4 Systematic risk of the indices from 2013 to 2018 [Colour
figure can be viewed at wileyonlinelibrary.com]
persist throughout the analysis period, we conducted the same empir-
ical experiments (computation of returns, standard deviations and per-
formance metrics) employing alternative sampling sizes. To that end, in
lieu of dividing the whole sample into two or more subsamples, we
adopted a "growing window" procedure akin to Miralles‐Quirós
et al.'s (2019) and reestimated all metrics for increasing samples. More

FIGURE 5 Robustness test with the Sharpe measure [Colour figure can be viewed at wileyonlinelibrary.com]
12
specifically, we started by computing all metrics for the period
between January 1st, 2013, and May 21st, 2013. This accounted for
100 observations, which is sufficiently large that proper inferences
can be drawn based on the metric outputs. Then, we increased the
sample by one observation each step until we covered the whole anal-
ysis period, i.e., until December 31st, 2018.
The above‐mentioned procedure was adopted for all metrics
depicted in Sections 4.1 and 4.2. To conserve space, however, we
opted to show the results only for the Sharpe measure (ShM) and
for the 1% minimum expected return Omega ratio (Ω (Rmin = 1%)).
This selection was mainly done to check whether the contrasting
views suggested by such measures persisted throughout time. The
former suggested better values (higher Sharpe ratios) for most mar-
ket indices when compared with their corresponding sustainability
portfolios, while the latter suggested better results (higher Omega
values) for the sustainability indices in almost every region (except
for the US).
FIGURE 6 Robustness test with the Omega measure (Rmin = 1%) [Colour figure can be viewed at wileyonlinelibrary.com]
CUNHA ET AL.
The results of the robustness checks are depicted in Figures 5 and
6 for the Sharpe and Omega ratios, respectively. As expected, the
values for the illustrated metrics obtained throughout the analysis
period are, to a greater part, in line with the inferences draw from
Table 5. Sharpe ratios are considerably larger for market indices in
almost every studied region, with the exception of Europe, in which
both sustainability and market indices tracked closely practically
throughout the entire analysis period. Omega measures for a 1% min-
imum expected return, however, are notably larger, in relative terms,
for sustainability indices worldwide and in the regions comprising
Asia‐Pacific countries and emerging markets. In Europe, the behavior
of both indices was quite similar in terms of Omega ratios, with the
measures being very close to each other during the entire analysis
period (as with the Sharpe ratio). Finally, for the US, even though the
1% minimum expected return Omega ratios were considerably higher
for the market index at the beginning of the analysis period, the differ-
ence (when compared to the US sustainability index) decreased
CUNHA ET AL.
considerably throughout the years. As a result, Omega measures for
the American case were within the same order of magnitude by the
end of 2018.
4.4 | Limitations
Our assessment of stock indices regards a specific asset class of sus-
tainable investments with particular financial dynamics. Although pub-
lic equity is the most prominent asset class of global sustainable
investments (GSIA, 2019), there are other important classes that
should also be investigated.
As mentioned in Section 3, the DJSIs measure the performance of
companies within a wide range of industries selected based on broad
ESG criteria and a best‐in‐class screening strategy. Assessments
grounded on this type of stock index may provide limited outputs for
investors and other stakeholders interested in (i) assets of companies
within specific sectors, (ii) the implementation of more than one sus-
tainable investment strategy, and (iii) the promotion of particular envi-
ronmental and/or social positive impacts.
In the previous subsections, we related our findings to some gen-
eral facts that could have motivated them. We hasten to add, how-
ever, that the focus of this research was not to perform a causal
relationship analysis but rather to depict the main differences between
sustainable and mainstream investments in the last few years and pro-
vide some possible guidelines for them.
Finally, our research focused only on the portfolio performance of
sustainable investments. Additional information on the ESG perfor-
mance of sustainable investment products is also necessary for inves-
tors and other stakeholders (Escrig‐Olmedo, Muñoz‐Torres, &
Fernández‐Izquierdo, 2013).
5 | C ON C LU S I O NS A N D F U T U RE
D I R EC T I O N S
This research found its motivation in the need to provide updated and
robust information related to the performance of sustainable invest-
ments across global stock markets, especially in developing countries.
To that end, we assessed five DJSIs from 2013 to 2018 and compared
their performance with their respective market benchmarks. The
results suggest that sustainable investment performance is still hetero-
geneous worldwide, but there is a promising opportunity for investors
to obtain superior risk‐adjusted returns in certain regions while incor-
porating sustainable investment practices. This corroborates our initial
hypothesis and advances the literature by indicating when and in
which regions sustainable investments have recently been
outperforming market benchmarks, considering different investor
preferences.
The results and conclusions of the study have important implica-
tions for different audiences. For practitioners of financial markets,
the evidence shows that sustainable investment performance can yield
good risk‐adjusted returns for different investor profiles and promote
high corporate ESG standards of invested companies. For business
13
managers, the evidence shows the importance of considering sustain-
ability investing and participating in those indices, bearing in mind that
stock markets positively valuate these initiatives in many cases.
For academics, we contribute to the literature on sustainable
investment and suggest that future studies could benefit from
assessing sustainable investments considering, for example, (i) differ-
ent classes of assets such as fixed income, real state, private equity,
venture capital and hedge funds; (ii) high‐impact sectors related to sus-
tainability issues, e.g., poverty, inequality and climate change; (iii) spe-
cific ESG factors; (iv) diverse and more active sustainable investment
strategies; (v) methods able to identify possible relationships between
performance and its potential causes; and (vi) not only portfolio but
also ESG performance analysis.
SHORT I NFORMATIVE
We analyzed the financial performance of Dow Jones Sustainability
Indices (DJSIs) and compared them with their respective market
benchmarks from 2013 to 2018, based on both classic and modern
financial metrics. The indices comprise a wide range of regions and
countries. The results suggest that sustainable investment perfor-
mance is still heterogeneous worldwide, but there is a promising
opportunity for investors to obtain superior risk‐adjusted returns in
certain regions while incorporating sustainable investment practices.
ACKN OWL ED GME NT S
Felipe Cunha and Erick de Oliveira thank prof. Patricio Samanez (in
memoriam) for his incentive. This work was supported by the Brazilian
Coordination of Improvement of Higher‐Level Personnel (CAPES)
[grant no. 001], the Brazilian National Council for Scientific and Tech-
nological Development (CNPq) [grants no. 306532/2016‐6 and no.
408470/2016‐0] and the Carlos Chagas Filho Foundation for Research
Support in the State of Rio de Janeiro (FAPERJ) [grant no. E‐26/
202.824/2018].
ORCI D
Felipe Arias Fogliano de Souza Cunha https://orcid.org/0000-0002-
3952-4384
Erick Meira de Oliveira https://orcid.org/0000-0002-8555-3880
Renato J. Orsato https://orcid.org/0000-0003-0215-9245
Marcelo Cabus Klotzle https://orcid.org/0000-0002-5463-6333
Fernando Luiz Cyrino Oliveira https://orcid.org/0000-0003-1870-
9440
Rodrigo Goyannes Gusmão Caiado https://orcid.org/0000-0002-
3290-8385
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