Socially Responsible Investment: Performance analysis of negative screening and best-in-class indices

In 2020, the Socially Responsible Investment (SRI) total assets under management around the world were evaluated at 35 trillion USD according to the Global Sustainable Investment Alliance (2021). In addition to this growing demand and offer in sustainable investment, the climate urgency makes this type of investment even more meaningful. The purpose of this thesis was therefore to investigate the financial performance of the most used SRI strategies around the world, the best-in-class and the negative screening strategies. To do so, different analysis have been carried out on 16 sustainable and 5 conventional indices coming from the MSCI database. The factors model, including the Capital Asset Pricing Model, the Fama French 3 factors model and the Carhart 4 factors model have revealed that both conventional and sustainable indices underperform compared to market returns. The sustainable indices constitute, in this research, the least favorable investment due to its generally superior systematic risk. Further research with Sharpe, Treynor, Sortino and Information ratios have been then conducted to compare the performance of the different approaches. It was found that the negative screening was less profitable in terms of both returns and risks than the best-in-class strategy. The hybrid approach, a mix of both strategies, has shown inconstantly outperformance which does not allow to draw clear conclusions.