Does environmentally responsible investing penalize investors?

This study analyzes the performance of environmentally responsible investing, in order to uncover whether investors are penalized for their choice to invest in environmentally responsible companies. An equally weighted index of environmentally responsible companies, measured by the Climate Disclosure Leadership Index (CDLI), achieves abnormal returns using the Sharpe ratio, Jensen’s alpha and Fama and French Three Factor models. However, equally weighted portfolios of the non-CDLI companies as well as the Financial Times 500 companies as a whole, achieve higher abnormal returns on all three performance measures. The results clearly demonstrate statistically significant abnormal returns on all three indices. Therefore, environmentally responsible investing does not penalize investors on a risk-adjusted basis. However, it does not reward investors to the same extent as investing without constraints