Profit is the only Green: Visualization of Swiss Stocks & SRI portfolios Sustainability
BY SEAN AKWEI ANUM
Abstract
Socially Responsible Investing (SRI), which is increasingly popular, emphasizes social and environmental factors in investment decisions to promote sustainability. In theory, SRI outperforms, especially in the long run. While practitioners typically remain skeptical, this unique return-based sustainability assessment of Swiss Stocks demonstrates SRI’s over performance and ability to promote sustainability.
Research Question
Is SRI a significant means of promoting Sustainability?
Sustainability, per the 1987 United Nations Brundtland Commission, means meeting present needs without compromising future generations, involving social, economic, and environmental aspects. In investments, it translates to SRI, blending social and environmental factors into investment decisions. This project seeks to quantitatively depict these sustainability dimensions for stocks and SRI portfolios on the SIX (Swiss Stock Exchange).
Methodology
Data Proxies
The data required deals with the three sustainability parameters for each stock on the Swiss Exchange: Environmental, Social and Economic.
Company Name | Environmental Score | Social Score | Economic Score |
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The Quantitative proxies are as follows: 1. Environmental: An ESG rating with a numeric individual score (pillar) for a firm’s environmental impact; 2. Social: An ESG rating with a numeric individual score for a firm’s Social impact; 3. Economic: a risk-adjusted measure of the firm’s expected return: Capital Asset Pricing Model (CAPM)
Visualizing Three Parameters
A 3D plot was chosen to visualize three quantitative parameters, effectively showing their relationship and intersections. Stocks with high environmental, social, and economic scores are classified as “Sustainable,” while those with low scores are deemed “At Risk.” Stocks with scores between these extremes are categorized as “Acceptable.”
The final visualization seeks to visualize the relative distribution of individual stocks & SRI portfolios regarding the three parameters. Hence, a standardized score for each parameter was used. The logic was to ensure that all parameters could be drawn down to a somewhat “equal” scale, thus ensuring an informative visual effect.
Constructing SRI Portfolios
Using the collected individual stock data, four SRI funds were created:
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Negative Screening: This SRI fund excludes investments in companies or sectors that do not meet specific ethical, environmental, or social criteria.
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Best in class: This fund selects companies that outperform their peers in environmental, social, and governance (ESG) criteria within each sector.
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Thematic Approach: This fund focuses on specific sustainability themes or sectors, such as renewable energy or social justice.
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ESG integration: This fund incorporates ESG factors into traditional financial analysis to identify risks and opportunities not captured by conventional methods.
Data
Sources
Data was collected for each of the three parameters. Data was attained via the Thompson Reuters financial market portal Refinitiv Eikon.
Environmental Pillar Score (ESG rating)
Measures a company’s impact on living and non-living natural systems, including the air, land and water, as well as complete ecosystems.
Social Pillar Score (ESG Rating)
Measures a company’s capacity to generate trust and loyalty with its workforce, customers and society through its use of best management practices.
Economic Pillar Score ( Beta)
A measure of how much the stock moves for a given move in the market.
Note, the Economic score was further computed with the Capital Asset Pricing Model (CAPM), which is CAPM = Risk-free rate+Beta*(Risk Premium), where risk-free rate and risk premium in Switzerland is 1.135% Source: World Government Bonds and 5.5% Source: NYU respectively.
Data was collected based on completeness. As such, despite the SIX listing 250 stocks, the project at hand uses 187. One stock, IGEA Pharma NV, was excluded as it was an extremely negative outlier that terribly affected the scale of the entire visualization.
Constructing “Sustainable” and “At Risk Criteria”
The Sustainability Criterion was defined as Environmental Score ≥ 70 (out of 100), Social ≥ 70 (out of 100); and Economic score ≥ 6.64% (Average Market Return). Consequently, the standardized scores were 1.05, 0.83 and 0, respectively. At Risk Criterion was defined as: Environmental Score ≤ 30 (out of 100); Social ≤ 30; and Economic score ≤ 3.34% (one standard deviation below Market Average Return). Consequently, the standardized scores were -0.30, -0.68 and -1 respectively. Conditions are based on core financial theories.
Data for SRI Portfolios
Regarding the Negative Screening and Best in Class Approach, using the ESG data collected, I easily constructed said portfolios. However, for the Thematic Approach and ESG integration, I replicated existing funds employing these strategies. They are the “Ethos Swiss Governance Index Large” and the “ETHOS II - Ethos Swiss Sustainable Equities -A” respectively.
Final Visualization
The graph is interactive. Average-sized points represent a stock on the Swiss Exchange. The bigger Orange points represent SRI portfolios, and the Big Black point represents the Market Average.

Results and Conclusion
Market’s Performance
The sustainability cuboid includes 11% of stocks and three-quarters of SRI strategies, whereas the at-risk quadrant contains 6% of stocks. The general market performance is deemed acceptable, with many stocks nearing the Sustainability cuboid. Despite needing substantial progress, these findings indicate a promising trend towards sustainability in the Swiss Stock Market.
SRI Performances
To answer the Research Question, SRI funds appear to promote sustainability. This is supported by the visualization showing 3 out of 4 strategies as sustainable. Contrary to expectations, “ESG Integration” is the only strategy classified as non-sustainable. In theory, the best strategy should be “ESG integration”, whereas the other three are seen as simplistic and lacking a nuanced ESG assessment concerning market returns. My paradoxical result likely arises because, unlike simpler strategies, “ESG Integration” involves more subjective and active management, leading to significant performance variations among different managers. Testing this hypothesis with another fund using “ESG Integration” yielded a “Sustainable result”, highlighting the classic debate between active and passive management but now within SRI.
Concluding Remarks
Ironically, firms with controversial reputations like Nestle, UBS, and Credit Suisse have good non-economic scores, while Cantonal banks unexpectedly show low scores. This raises questions about how these public entities might be causing more social and environmental harm and calls for a deeper examination of the legitimacy of ESG scores.