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Environmental Impacts of Conventional and Sustainable Investment Funds Compared Using Input‐Output Life‐Cycle Assessment

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  • Thomas Koellner
  • Sangwon Suh
  • Olaf Weber
  • Corinne Moser
  • Roland W. Scholz

Abstract

This study compares equity funds that are managed according to sustainability goals with conventionally managed funds with respect to their environmental impacts. Overlap in the portfolios of sustainable equity funds and conventional equity funds can be very large. Further, the sector allocation of both types of funds is generally very similar, because portfolio managers follow a chosen benchmark to minimize risk. These two effects may result in no difference existing between the two types of funds in terms of their environmental impact and damage (null hypothesis of this research). This study comparatively assesses the environmental impact of portfolios of 26 investment funds: 13 sustainable investment funds and 13 conventional funds, which are managed according to the benchmark MSCI World. The study applies input–output life‐cycle assessment (IO‐LCA) in combination with a simulation of company‐specific environmental performance. The environmental impact is evaluated per functional unit for each fund, measured as the risk‐adjusted financial performance. The statistical analysis showed that the analyzed sustainable investment funds performed better with respect to environmental impact assessment but worse in economic risk‐adjusted performance (RAP) over the period 2000‐2004. In 2004, however, the RAP of the selected sustainable investment funds showed better performance. Both samples considerably overlap for the environmental and economic parameters. The results suggest that the environmental impact of sustainable investment funds in the sample is slightly less than that of conventional funds.

Suggested Citation

  • Thomas Koellner & Sangwon Suh & Olaf Weber & Corinne Moser & Roland W. Scholz, 2007. "Environmental Impacts of Conventional and Sustainable Investment Funds Compared Using Input‐Output Life‐Cycle Assessment," Journal of Industrial Ecology, Yale University, vol. 11(3), pages 41-60, July.
    • Handle: RePEc:bla:inecol:v:11:y:2007:i:3:p:41-60
    DOI: 10.1162/jiec.2007.1147
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    Cited by:

    1. Rathner, Sebastian, 2012. "The Performance of Socially Responsible Investment Funds: A Meta-Analysis," Working Papers in Economics 2012-3, University of Salzburg.
    2. Chia‐Hao Liu & Manfred Lenzen & Joy Murray, 2012. "A disaggregated emissions inventory for Taiwan with uses in hybrid input‐output life cycle analysis (IO‐LCA)," Natural Resources Forum, Blackwell Publishing, vol. 36(2), pages 123-141, May.
    3. Oberndorfer, Ulrich & Schmidt, Peter & Wagner, Marcus & Ziegler, Andreas, 2013. "Does the stock market value the inclusion in a sustainability stock index? An event study analysis for German firms," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 497-509.
    4. N. Eccles & S. Viviers, 2011. "The Origins and Meanings of Names Describing Investment Practices that Integrate a Consideration of ESG Issues in the Academic Literature," Journal of Business Ethics, Springer, vol. 104(3), pages 389-402, December.
    5. Popescu, Ioana-Stefania & Gibon, Thomas & Hitaj, Claudia & Rubin, Mirco & Benetto, Enrico, 2023. "Are SRI funds financing carbon emissions? An input-output life cycle assessment of investment funds," Ecological Economics, Elsevier, vol. 212(C).
    6. Andreas Ziegler, 2012. "Is it Beneficial to be Included in a Sustainability Stock Index? A Panel Data Study for European Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(3), pages 301-325, July.
    7. Sebastian Rathner, 2013. "The Influence of Primary Study Characteristics on the Performance Differential Between Socially Responsible and Conventional Investment Funds: A Meta-Analysis," Journal of Business Ethics, Springer, vol. 118(2), pages 349-363, December.
    8. Quatrini, Simone, 2021. "Challenges and opportunities to scale up sustainable finance after the COVID-19 crisis: Lessons and promising innovations from science and practice," Ecosystem Services, Elsevier, vol. 48(C).
    9. Julian Amon & Margarethe Rammerstorfer & Karl Weinmayer, 2021. "Environmental Portfolios—Evidence from Screening and Passive Portfolio Management," Sustainability, MDPI, vol. 13(22), pages 1-23, November.
    10. Atan, Ruhaya & Alam, Md. Mahmudul & Said, Jamaliah & Zamri, Mohamed, 2019. "The Impacts of Environmental, Social, and Governance Factors on Firm Performance: Panel Study of Malaysian Companies," SocArXiv ntz52, Center for Open Science.
    11. Nevi Danila, 2022. "Random Walk of Socially Responsible Investment in Emerging Market," Sustainability, MDPI, vol. 14(19), pages 1-13, September.
    12. Jean D. Kabongo, 2019. "Sustainable development and research and development intensity in U.S. manufacturing firms," Business Strategy and the Environment, Wiley Blackwell, vol. 28(4), pages 556-566, May.

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