Environmental Portfolios—Evidence from Screening and Passive Portfolio Management

Julian Amon, Margarethe Rammerstorfer and Karl Weinmayer
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Julian Amon: Department of Finance, Accounting and Statistics, WU (Vienna University of Economics and Business), Welthandelsplatz 1, 1020 Vienna, Austria
Margarethe Rammerstorfer: Department of Finance, Accounting and Statistics, WU (Vienna University of Economics and Business), Welthandelsplatz 1, 1020 Vienna, Austria
Karl Weinmayer: Department of International Management, Modul University Vienna, Am Kahlenberg 1, 1190 Vienna, Austria

Sustainability, 2021, vol. 13, issue 22, 1-23

Abstract: Environmental portfolios via screening or optimization with respect to ecological criteria are not clear-cut concepts. Often, they urge investors to reduce the asset universe, which is accompanied by diversification losses. In this article, we show that a simple passive asset selection strategy based on environmental criteria allows ecological investors to adjust their portfolios without compromising or even reducing risk-adjusted financial performance. In detail, we show that screening does not lead to a significant financial performance reduction. Moreover, we propose an asset selection based on an environmental criteria that improves the portfolios’ financial performance, and further improves its potential positive environmental impact. Our results suggest that a combination of a screening and an environmental-scoring-based asset allocation seems to be a viable option for environmentally responsible investors leveraging the advantages of both strategies. Furthermore, we construct a risk factor CMP (clean minus polluting) and document a significant factor loading when added to the Fama–French five-factor model, suggesting the existence of a risk premium based on a firm’s environmental performance.

Keywords: asset selection; ecological investment; benchmarking; performance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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