The Performance of Socially Responsible Funds: Does the Screening Process Matter?
51 Pages Posted: 7 Jan 2011 Last revised: 4 Jan 2012
Date Written: December 8, 2010
Abstract
In this study we examine whether the financial performances of socially responsible investment (SRI) mutual funds are related to the features of the screening process. Based on a sample of French SRI funds, we find evidence that a greater screening intensity slightly reduces financial performance (but the relationship runs in the opposite direction when screening gets tougher). Further, we show that only sectoral screens – such as avoiding “sin” stocks – decrease financial performance, while transversal screens – commitment to UN Global Compact Principles, ILO/Rights at Work, etc. – have no impact. Lastly, when the quality of the SRI selection process is proxied by the rating provided by Novethic, its impact is not significant, while a higher strategy distinctiveness amongst SRI funds, which also gives information on the quality of the selection process, is associated with better financial performance.
Keywords: Socially Responsible Investing (SRI), Sustainable and Responsible Investment, Ethical Investment, Corporate Social Responsibility (CSR), Strategy Distinctiveness Index, Portfolio Choice, Ratings
JEL Classification: G11, Q56, C32
Suggested Citation: Suggested Citation
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