Abstract
This study focuses on assets related to Sustainable Development Goals (SDGs), which are the most recent aspect of the Socially Responsible Investment framework and have caught the attention of investors due to their investment opportunities as well as the global challenges that can be achieved. The profitability of developing an investment strategy is shown based on the value of the alphas obtained from the estimation of the Fama-French five-factor model when compared to an equally weighted portfolio, even when transaction costs are taken into consideration. In addition, it is proven that investors should focus their investments on two main SDGs: Good health and well-being (Goal 3) and Industry, innovation and infrastructure (Goal 9).
Highlights
The United Nations’ Sustainability Development Goals (SDGs, hereafter) launched in September 2015 are a set of 17 goals focused on the way of solving some of the most urgent problems the world is facing: poverty, clean water, clean energy, decent work and economic growth and climate action, among others
This is the case, for instance, in the recent works of Joliet and Titova [3], who assessed the fundamental characteristics of Socially Responsible Investments (SRI) funds using the Fama-French five-factor model [4], finding that screening criteria guide investment decisions, or Sokolovska and Kešeljevic [5] who found both overperformance and underperformance in the regional Dow Jones Sustainability Indexes over the period 2006–2016 and stated that renewable energy indices are financially unattractive; to the best of our knowledge there is no empirical evidence on Sustainable Development Goals (SDGs) assets employing this methodology
There are numerous studies that, by employing the same methodology based on multi-factor asset pricing models, have focused on analyzing the evolution and performance of sustainable stock indices compared to conventional ones such as those conducted by Sauer [38], Statman [39], Schröder [40], Consolandi et al [41] and Managi et al [42], and more recently by Cunha et al [18], Jain et al [43] and Sokolovska and Kešeljevic [5]
Summary
The United Nations’ Sustainability Development Goals (SDGs, hereafter) launched in September 2015 are a set of 17 goals focused on the way of solving some of the most urgent problems the world is facing: poverty, clean water, clean energy, decent work and economic growth and climate action, among others. This article takes into account previous empirical evidence that has extensively employed multi-factor asset pricing models to explain the cross-sectional variation in expected returns of Socially Responsible Investments (SRI). SRI must evolve towards a sustainable investment aligned with the efforts defined by the United Nations (UN) to achieve global sustainable development and concretized in the SDGs due to the fact that investors are called upon to play a relevant role in achieving them It is employed for attractive and innovative financial products such as ETFs that can be traded directly by individual investors in the stock market. This makes SRI more accessible because it brings investors the opportunity of gaining autonomy instead of depend on a professional portfolio manager It is provided an active trading strategy based on the use of the traditional methodology that employs multi-factor asset pricing models.
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