Do green mutual funds perform well?

Purpose - The purpose of this paper is to compare the financial performance of green and traditional mutual funds in the USA. Design/methodology/approach - A total of 131 green mutual funds identified by US SIF, were compared with the averages of all traditional mutual funds in their respective Morningstar categories. Performance measures analyzed included annualized rates of return, expense ratios, and Sharpe ratios, among others. Most data pertained to at least the past three years, while other data pertained to the most recent 5 to 15 years. Findings - The results demonstrate that green mutual funds have generated lower returns and similar risks compared to traditional mutual funds in their respective Morningstar categories. Green mutual funds have underperformed on a risk-adjusted basis. Research limitations/implications - Since there is no formal definition of a green mutual fund, the researcher and investor must make a subjective call in assessing which funds invest "green". However, at least in this early stage in the history of green investing, green mutual funds have underperformed their peers. Originality/value - Results confirm the limitations of green investing as suggested by various researchers, among them Sharpe, Rudd and Kurtz and DiBartolomeo. Results stand in contrast to Corson and Van Dyck and Statman, among others, which reported no significant underperformance for socially responsible investments.