greenhouse effect. Since the industrial revolution, gases emissions kept on rising with a quick acceleration starting in the eighties, leading to an artificial increase in the world's temperature.
Meanwhile, almost forty years ago, structured awareness was raised worldwide by scientists about environmental issues. It became obvious that our economic model was not suitable for our planet. What could have been considered during the previous years as isolated incidents were, in fact, the premises of a silent and terrible environmental crisis.
From the eighties to nowadays, governments have tried to implement new laws and discussed global agreements, such as the Paris Agreement. Unfortunately, the discussions take long time, and the outcomes do not fit the emergency of the situation. Even in the best scenario, we are still far from remaining under the objective of 1.5-degree Celsius global temperature augmentation. Hence, governments should not be the only ones to deal with the climate change issue, as everyone from the companies to the individuals live on the same planet, are and will be impacted. There is no planet B. Unfortunately, one of the worst default of humans is avidity.
But as a Native American said: “When the last tree is cut down, the last fish eaten, and the last stream poisoned, you will realize that you cannot eat money”. Indeed, a report sent to United Nations in April 2019 mentioned that we are officially in the 6th mass extinction the Earth has faced in its history. The last one provoked the dinosaurs’ disappearance. Thus, a joint effort from both companies and individuals is required.
Since the eighties, with a boost starting in years 2000, corporate social responsibility (CSR)
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became from a broad idea delegated upstage to an entire service like marketing or accounting in most of the big companies. With the emergence of the Internet and social media, branding awareness has never been as easy and companies suffering from scandals endure huge losses such as Volkswagen scandal in 2015. The CSR’s definition given by Investopedia says that:
“Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable to itself, its stakeholders and the public […] companies can be conscious of the kind of impact they are having on all aspects of society including economic, social and environmental”. Even if several studies showed the impact of irresponsible behaviors on companies’ performance (Grossman, 2005), it is not easy to measure and even less predict the cost of such behavior.
So, to try to measure how “responsible” is an enterprise, some complex tools like the ESG (Environmental Social Governance) combined score in Thomson Reuters and strategies were created. Environmental, social and governance are the three score’s components that define the level of responsibility of a company. Added to this, another parameter, the ESG controversies score pools ten categories of controversies. The ESG score and ESG controversies combined, make the ESG combined score composed of more than 400 measurements making all types of public companies comparable. The ESG combined score is not a static measure as it is refreshed every week and keep on track companies’ actions, announcements, and scandals. Even if all the public companies are not listed, Thomson Reuters is constantly adding new indexes, listing 6750+ firms worldwide and 1200+ in Europe (Thomson Reuters, 2019). This score was used in most of the previous works to define whether or not a company could be considered as a sustainable entity.
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shareholder wealth maximization theory, companies should only concentrate on making profits to increase their share price and to offer dividends. This is the own aspect that should affect shareholders in accordance with this theory. But, ESG combined score is used by many investors in their decision-making process nowadays. We can identify several reasons why people consult this measure. First, people get willing to make a good impact and are tired of hearing of environmental, social and governance scandals from the firms which are part of their portfolio. Secondly, these scandals increase their portfolio’s volatility and often decrease their expected returns. Thirdly, it becomes clearer for everyone, and even more for younger generations, that our lifestyle must drastically change if we simply want to survive. So, if you are an investor and you can be part of a positive change while having good returns, and it is as easy to buy and sell these assets as the systemic ones, why would not you want to invest your savings in? These reasons explain the appearance of sustainable investment. Socially responsible investments (SRI), also called responsible investments (State Street, 2018), consider the environment, social and governance criteria while generating positive returns and making a good impact.With half of the world SRI’s assets value, reaching around €14.1 trillion in 2018 (Global Sustainable Investment Alliance report, 2018), Europe is one of the main hubs in sustainable investment for a long time with €476 billion value of ESG funds. Almost half of the world’s green bonds are listed in Luxembourg (State Street, 2018). Furthermore, Europe demonstrates a fast growth in its SRI assets’ value which should keep on growing with the new sustainable finance proposals from the European Commission. Moreover, it offers diversified sustainable choices in terms of asset classes: cash and cash equivalents (through sustainable banks) fixed
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income, public equities and mutual funds. In the context of this thesis, cryptocurrencies will be put aside as it is still a debate rather it is, or not an asset. In any way, cryptocurrencies are actually not financial assets and belong to another standard (IFRS Interpretations Committee, 2019), and this thesis will rely on it.
Hence this study will focus on the banking industry, loans and deposits because it is the main category of cash and cash equivalents an individual can have access to. The aim of this thesis is to show whether or not sustainable banks’ performance in European Union makes sustainable banks an interesting opportunity from an investor’s perspective studying the years 2014 to 2018.
A comparison with systemic banks in European banks, their competitors, will be done to assess sustainable banks’ performance.
To do so, in the first part of this research, the literature review will be used as a framework to get a better understanding of sustainable investment and highlight the existing literature on the chosen topic. The second part will be the research methodology presenting the assumptions, the sample description, the data collection, and the calculations. In the third part, the results and analysis will display a comparison between sustainable banks and systemic banks’ performance between 2014 and 2018. In this research, the words responsible and ethical will be considered as synonyms of sustainable while referring to sustainable banks. As well as systemicand systemic while referring to systemic banks. Finally, the discussion will compare this thesis’
results to previous works findings in Europe and in the rest of the world. It will also emphasize the limits of the study and provide some recommendations for further research on this topic.
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At first, the following literature aims to present the previous studies done about sustainable investment in the world and more specifically in Europe. It intends to design a framework that will help the reader of this paper to understand the challenges and outcomes of the ensuing study. Thus, it starts from a global perspective to progressively concentrate on Europe. In a second time, it will focus on the existing literature about cash and cash equivalents and the banking industry’s performance
2.1. Sustainable investment globally
In the first subsection of this literature review, the history of sustainable investment will be introduced from its emergence to nowadays. Then, a more complex definition of sustainable investment will be provided by analyzing the strategies and best practices of sustainable finance.
In the second subsection, an overview of the legal frameworks and some key figures in Europe will be displayed to enable to analyze the market situation and provide a first examination of the implementation of socially responsible investments (SRI) assets in retail investors’ portfolio.
2.1.1. History
Socially responsible investing (SRI) refers to any investment strategy which aims to reach both financial performance and positive environmental and social change (Polivka, 2013). At first, in 1960, SRI was more oriented towards the social aspect, as awareness about the greenhouse effect and climate change only started to be raised in the eighties. The first concerns in the modern era about social issues were towards civil rights, gender equality, and labor conditions.
These first actions were not about investing in social companies that were implementing new innovative policies, but rather boycotting some specific corporations judged for their bad