Does sustainability pay off? A multi-factor analysis on regional DJSI and renewable stock indices

The private sector arguably plays a greater role in sustainability transitions through private investment. The authors apply the four- and five-factor Fama-French models to the Dow Jones Sustainability Index (DJSI) and a range of renewable energy indices to evaluate the financial attractiveness of sustainability in general, relative to alternative investments. They find both overperformance and underperformance in the regional DJSIs over the period 2006–2016. In contrast, renewable energy indices have high betas and negative alphas, which makes them financially unattractive. These results imply the need for public support in sustainability transitions, as high risk and low return deter private investment.