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Contribution Details

Type Bachelor's Thesis
Scope Discipline-based scholarship
Title Are the Costs of Sustainable Funds Sustainable?
Organization Unit
Authors
  • Nicole Ott
Supervisors
  • Thorsten Hens
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 48
Date July 2021
Zusammenfassung The purpose of this paper is to investigate whether the costs of sustainable funds are sustainable. Sustainable Investing (SI) has become increasingly relevant, and a growing number of financial institutions appear to finally take sustainability into account in their investment decisions. This paper is an empirical analysis of the Total Expense Ratio (TER) of more than 40,000 funds and of the relationship of these TER to the respective funds’ Environmental, Social and Governance (ESG) scores as defined by Thomson Reuters, now Refinitiv. Chapters 1 and 2 give a short overview of why SI is vital, as well as some background information on why taking ESG concerns into account is crucial. Chapter 2 focuses specially on the topic of the Sustainable Development Goals (SDGs), how they were developed and how they are translated in the more common and easier to understand ESG metrics. Chapters 3 and 4 describe the process of downloading the data for this paper, as well as the preparation and methodology applied. The data was downloaded from Refinitiv. The primary data set included 86,581 observations and 205 variables. A more detailed description of the data is given in chapter 3. The methodology for this thesis is described in Chapter 4. Two approaches were taken for this thesis: In a first approach, so-called “twin fonds“ were investigated. In this approach, two funds that are identical except for their ESG characteristic were analyzed. As the number of direct twins is relatively small, a second approach consisted of running regressions of the TER on a number of explaining variables. The variables used for these regressions are described in detail in Chapter 4. The model used in this thesis is a simple Ordinary Least Squares (OLS) regression. The reason that three different models were used by applying different variables is rather plain: due to a lack of data, some variables are only available with loss of observations. Chapter 5 describes the results of the empirical analysis. The most interesting one is the influence of the ESG variable in the regression analysis. This variable is statistically highly significant and has a slightly negative influence on the TER: The average ESG score of roughly 60 reduces the TER by approx. 10 basis points. This is a relevant and new finding that has not been reported in the existing literature. The influence of other important variables explaining the TER is also discussed, including the comparison to results found previously in the literature. As the results of the analysis were rather surprising, they needed to be discussed with experts. This was done in interviews with ESG experts working in the financial sector. Chapter 6 provides an overview of the answers given and the results of these interviews. It also offers interesting points of view of different experts. Chapter 7 gives a short summary of the paper and lists all key findings from the analysis as well as from the discussions with the experts.
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