Comparison of High ESG Portfolio Performance in Germany and Switzerland

Abstract

This study focuses on the relationship between stock return performance and sustainability, the latter taking the form of the Environmental, Social, and Governance (ESG) framework. The paper provides a comparative setting in which stocks of companies headquartered in Germany and Switzerland are examined. The sample consists of 22 German and 23 Swiss companies as constituents of the STOXX Global ESG Leaders EUR Price Index, spanning from November 2005 to December 2021. Factor models of Fama and French (1993) and Carhart (1997) are utilized to gain deeper understanding on potential influence from size, value, and momentum effects on stock returns, with a sustainability perspective applied to the analysis. The Swiss portfolio outperforms its counterpart in terms of alpha, with significant risk-adjusted performance measures in the form of Sharpe and Treynor Ratios. Risk factors of Switzerland exhibit all factor effects while risk factors of Germany exhibit opposite character. Additionally, similar signs of risk factors of the portfolios are detected from examining sub-periods involving the global financial crisis in 2007 – 2009 and COVID-19 pandemic covered in the study during 2019 – 2021. This suggests that profound events with reference to industry dominance, as well as flexibility in sustainability corporate activities play an important role in the interaction of stock returns and sustainability.