Risk-Return of Belgian SRI Funds

Abstract

We analyse the risk-return profile of Belgian SRI funds versus conventional investment funds. We apply a four-factor conditional Carhart model to establish whether there are significant differences in risk-return profile between an SRI portfolio and a conventional portfolio and test for learning effects in SRI funds. We show that there is no difference in risk-return profile between SRI and conventional funds. If return is not the problem, then what is it that limits the development of an SRI retail market in Belgium? We conclude with a short digression on this question.

Is Socially Responsible Investing (SRI) in Stocks a Competitive Capital Investment? A Comparative Analysis Based on the Performance of Sustainable Stocks

“…Bauer et al (2005) use a Carhart multi-factor model for the evaluation of over hundred ethical mutual funds in comparison to their conventional counterparts in Germany, the UK and US and cannot find hints of a generally worse performance. Moreover, these findings are consistent with those for Spain (Fernandez-Izquierdo and Matallin-Saez, 2008), the Netherlands, the UK and Sweden (Kreander et al, 2005), Belgium (van Liedekerke et al, 2007), Australia (Humphrey and Lee, 2011;Bauer et al, 2006), Europe and a group of 17 countries in Asia and Europe (Renneboog et al, 2008a). Similar results were found in China (Zhang, 2014), in the North American market (Muñoz et al, 2014;Bello, 2005;Statman, 2000), Canada (Bauer et al, 2007), 7 Reasons are e.g.…”

“…SRI should at least consider one nonfinancial criterion, namely ethical, ecological or society-related (Benijts, 2010;van Liedekerke et al, 2007;Barnett and Salomon, 2003;Lewis and Mackenzie, 2000). (EuroSif, 2016;Bacher and Bacher, 2015).…”

“…The degree of diversification of an SRI portfolio itself seems to be limited because of the restricted investment universe (van Liedekerke et al, 2007).…”

“…7 Recent literature indicates that SRI seem to perform predominatly equal (Climent and Soriano 2011;Bello 2005;Kreander et al 2005), sometimes even better (Cummings 2000;Mallin et al 1995) or at least not worse (Bauer et al 2005(Bauer et al ,2007van Liedekerke et al 2007) than their conventional counterparts. (Bauer et al 2005(Bauer et al , 2007.…”

“…Some studies concluded that restrictions of the investment universe may result in lower level of diversification (Sauer 1997). Other studies deny the existence of a higher risk of SRI portfolios (Kempf and Osthoff, 2007;van Liedekerke et al, 2007;Koedijk et al, 2004).…”