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Can Sustainable Investment Yield Better Financial Returns: A Comparative Study of ESG Indices and MSCI Indices


  • Mansi Jain

    () (School of Management Studies, Guru Gobind Singh Indraprastha University, Sector 16C, Dwarka, New Delhi 110078, India)

  • Gagan Deep Sharma

    () (School of Management Studies, Guru Gobind Singh Indraprastha University, Sector 16C, Dwarka, New Delhi 110078, India)

  • Mrinalini Srivastava



‘Sustainable investment’—includes a variety of asset classes selected while caring for the causes of environmental, social, and governance (ESG). It is an investment strategy that seeks to combine social and/ or environmental benefits with financial returns, thus linking investor’s social, ethical, ecological and economic concerns Under certain conditions, these indices also help to attract foreign capital, seeking international participation in the local capital markets. The purpose of this paper is to study whether the sustainable investment alternatives offer better financial returns than the conventional indices from both developed and emerging markets. With an intent to maintain consistency, this paper comparatively analyzes the financial returns of the Thomson Reuters/S-Network global indices, namely the developed markets (excluding US) ESG index—TRESGDX, emerging markets ESG index—TRESGEX, US large-cap ESG index—TRESGUS, Europe ESG index—TRESGEU, and those of the usual markets, namely MSCI world index (MSCI W), MSCI All Country World Equity index (MSCI ACWI), MSCI USA index (MSCI USA), and MSCI Europe Australasia Far East index (MSCI EAFE), MSCI Emerging Markets index (MSCI EM) and MSCI Europe index (MSCI EU). The study also focusses on the inter-linkages between these indices. Daily closing prices of all the benchmark indices are taken for the five-year period of January 2013–December 2017. Line charts and unit-root tests are applied to check the stationary nature of the series; Granger’s causality model, auto-regressive conditional heteroskedasticity (ARCH)-GARCH type modelling is performed to find out the linkages between the markets under study followed by the Johansen’s cointegration test and the Vector Error Correction Model to test the volatility spillover between the sustainable indices and the conventional indices. The study finds that the sustainable indices and the conventional indices are integrated and there is a flow of information between the two investment avenues. The results indicate that there is no significant difference in the performance between sustainable indices and the traditional conventional indices, being a good substitute to the latter. Hence, the financial/investment managers can obtain more insights regarding investment decisions, and the study further suggests that their portfolios should consider both the indices with the perspective of diversifying the risk and hedging, and reap benefits of the same. Additionally, corporate executives shall use it to benchmark their own performance against peers and track news as well.

Suggested Citation

  • Mansi Jain & Gagan Deep Sharma & Mrinalini Srivastava, 2019. "Can Sustainable Investment Yield Better Financial Returns: A Comparative Study of ESG Indices and MSCI Indices," Risks, MDPI, Open Access Journal, vol. 7(1), pages 1-19, February.
  • Handle: RePEc:gam:jrisks:v:7:y:2019:i:1:p:15-:d:203150

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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Research Review | 8 February 2019 | ESG Investing
      by James Picerno in The Capital Spectator on 2019-02-08 04:19:57

    More about this item


    sustainability indices; socially responsible investment; index returns; financial markets; ARCH; Johansen’s cointegration; VECM;

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • K2 - Law and Economics - - Regulation and Business Law


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