Abstract
Given that the current socio-economic climate is plagued by societal disparities and environmental degradation, this study highlighted the need for a societal and environmental approach to investment management. More recently, the rise of Environmental, Social and Governance (ESG) and impact investing have gained prominence as practical tools to allocate capital towards addressing these challenges and achieving sustainable development in international development agendas such as the United Nations Principles of Responsible Investment (UNPRI) and the United Nations’ (UN) Sustainable Development Goals (SDGs). Considering the pursuit of societal and environmental outcomes associated with ESG and impact investing, the study aimed to investigate, compare, and contrast the financial viability of these Socially Responsible Investment (SRI) strategies. To this end, the study utilised a quantitative method and a true experimental design. Sustainable portfolios were constructed and evaluated relative to a traditional portfolio, and a broad-based market index before these portfolios were used to benchmark the risk-adjusted performance of these securities. The sample period was from 1 January 2014 to 31 December 2019. The study used a statistical analysis to derive the return properties of these sustainable investments before the computation of the Sharpe ratio as a preliminary measure of risk-adjusted performance. Subsequently, the estimation of the Capital Asset Pricing Model (CAPM) and the Carhart-Fama-French Model were used to meet the objectives of the study. The findings of the study indicated that there is a statistical difference between ESG and impact investments. ESG investments were deemed less volatile than impact investments. At the same time, impact investments generated higher risk-adjusted returns relative to ESG investments and displayed similar characteristics to a traditional portfolio of investments.
Keywords: ESG investing, impact investing, comparative analysis, risk-return characteristics, investments