1. Aim and Scope of the Study

Aim and structure

The aim of this study is to contribute to the discussion on whether so-called "sustainable investments" actually generate a positive investment impact. To do so, it elaborates on whether or not sustainable investments16 have a positive capital allocation effect on investment portfolios, and which framework conditions are needed for an effective capital allocation.

The study is structured as follows: This chapter outlines the aim and scope of the study. Chapter 2 explains the background of the research questions and sets the theoretical framework and definitions. The methods and data used for the empirical analysis are described in chapter 3, an overview of the main results is given in chapter 4. Chapter 5 then elaborates on the framework conditions that are needed for an effective capital allocation towards sustainability. Based on the empirical results and the necessary framework conditions, chapter 6 discusses the study results in more detail. Finally, chapter 7 summarises the main conclusions and derives recommendations for asset owners, asset managers and regulators.

Research questions

The research questions of this study are as follows: 4. Are sustainability retail funds in Switzerland and Luxembourg able to effectively channel capital into sustainable economic activities? To what extent are they still invested in activities that are problematic from a sustainability perspective? 5. How effective is the application of different sustainability approaches (best-in-class, exclusions, ESG17 integration, engagement, etc.) by asset managers for achieving a positive capital allocation? 6. What framework conditions are needed for an effective capital allocation? What could the current EU regulatory framework contribute in this regard?

Research methods

For research questions one and two, we conducted a statistical evaluation of a sample of retail funds available in Switzerland and Luxembourg. The results are illustrated by two case studies, among others. The elaboration of the third research question is based on the results of the statistical evaluation, literature review, and expert knowledge.

16 Sustainable investments are defined as investments in which environmental, social and governance (ESG) factors are integrated into investment decisions, see SSF 2020. They can also be referred to as responsible, social, ethical, or socially responsible investments. We treat these terms as synonymous, since the differences are not relevant to the research question. 17 “ESG” stands for environmental, social and governance factors.