Sustainable energy goals and investment premium: Evidence from renewable and conventional equity mutual funds in the Euro zone

Abstract

Renewable energy sources have significant socio-economic benefits. Usually, the investment in such ventures is financed by the states. However, the growing scale warrants enhanced participation from financial markets. In this paper, we assess the attractiveness of renewable investments by comparing the performance of alternative energy-focused equity funds against their conventional counterparts. The sample spans over ten years from 2010 to 2019 and includes 3886 funds across nineteen Eurozone countries. Our findings suggest that renewable energy funds underperform traditional peers and market benchmarks and lack market and volatility timing. These results indicate that investors willing to opt for environment-friendly investment funds have to pay a premium for their choice, negatively reflecting financial attractiveness. We propose that the EU states intervene with fiscal, regulatory, and legislative steps to make renewables viable and provide a conducive investing environment.