Sustainable investing as an investment strategy relies on the selection of stocks of the companies, which goods and services meet the criteria of ethical business practices and which avoid certain areas of business activity deemed as damaging environment or unethical. Such strategies are known also as socially responsible investments (SRI) or environmentally friendly investments. This paper reviews the literature on sustainable investing and “green stocks” as a class of financial instruments. We discuss the opportunities and present some implications for investors on the Polish capital market who can apply such selection criteria and use those stocks in their strategies.. Since the SRI  are the new type of investment activity in Poland, there are no mutual or investment funds or stock market indices yet, that would precisely define which stocks are considered to belong to such category of assets. Hence we had to make our own selection based on the information provided by the companies and collected in the Notoria database.

We analyze risk and returns of companies, which in the Polish market meet the criteria of sustainable investing. In particular we provide evidence about the estimates of beta coefficient for  selected SRI stocks and  attempt to answer the question about the profitability of investment in the these stocks in the Polish capital market.  We estimated beta coefficient using ARCH methodology or ordinary least squares (OLS) method in case of no heteroscedascity and no ARCH effects.

The results of our research demonstrate some important findings.  First, most of the obtained  beta estimates are below 1, which indicates that SRI stocks exhibit low sensitivity to the movement of the market index. Second, the beta estimates increases for longer intervals.. Third, the number of ARCH effects increases as the interval is lengthened.  Fourth, in the analyzed period (31.03.2008-11.05.2009) the portfolios of SRI stocks (both equally weighted and capitalization weighted)  have beaten  the WIG and sWIG80 indices as far as returns and risk adjusted profitability measures are concerned.  The general problem discussed in the literature is that SRI portfolios are usually poorly diversified due to the nature of the underlying selection process and additionally, the small stock bias may explain relatively high returns comparing to other, broad market indices. However in our sample, the SRI portfolios have beaten also the sWIG80 index of small stocks.

1. FULLTEXT: Sustainable investing, Microsoft Office Document, 4.3MB

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