The Price of Ethics and Stakeholder Governance: The Performance of Socially Responsible Mutual Funds

Do socially responsible investment indexes outperform conventional indexes?

“…They conclude that there are no significant differences in risk-adjusted returns between the SRI and conventional funds. Similarly, applying the capital asset pricing model and the multi factor model, Renneboog et al (2008b) additionally find that SRI funds in the US, the UK, and in many continental European and Asian-Pacific countries underperform their domestic benchmarks. However, with several exceptions, the risk-adjusted returns of SRI funds are not statistically different from the performance of conventional funds.…”

Do Sustainable Stocks Offer Diversification Benefits for Conventional Portfolios? An Empirical Analysis of Risk Spillovers and Dynamic Correlations

“…In applications of this concept to socially responsible investments, a number of studies including [1,3,[6][7][8][9] claim that non-financial elements provide SRI investors with extra utility or satisfaction. In addition, as pointed out by [1,[9][10][11][12], SRI investors tend to believe that ESG factors materially affect the returns in a positive way, which, in turn, can lead to lower costs involved in the avoidance or minimization of environmental and reputational risks, and better management and better customer satisfaction that eventually impacts revenues in a positive way. Possibly, these are the reasons that have led the global SRI (sustainable investment) market to grow steadily both in absolute and relative terms.…”

“…There are now a number of studies on SRI which have investigated the following aspects, primarily through the lens of mutual funds, but also through regional SRI indexes for not only the US, but also Europe and other major developed economies. (a) Performance (i.e., risk-return characteristics relative to conventional indexes), using mutual funds and broad market indexes [11,12, and at firm-level [3,34,[39][40][41][42][43][44][45]. These studies, however, fail to provide clear-cut empirical evidence on whether SRI does yield higher returns after adjusting for risks.…”

Are they any good at all? A financial and ethical analysis of socially responsible mutual funds

“…While there are some studies that report upon a superior nancial performance of certain SRI criteria (Moskowitz, 1972;Luck and Pilotte, 1993;Derwall et al, 2005;Edmans, 2011), others nd empirical evidence of a nancial underperformance (Brammer et al, 2006;Renneboog et al, 2008a;Hong and Kacperczyk, 2009;Mǎnescu, 2011). There is also a bulk of studies which sees no signi cant differences between the nancial performance of SRI and conventional investments (Hamilton et al, 1993;Kurtz and DiBartolomeo, 1996;Guerard, 1997;Bauer et al, 2005;Schröder, 2007;Statman and Glushkov, 2008).…”