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Does it Really Hurt to be Responsible?

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  • Jacquelyn Humphrey
  • David Tan

Abstract

Prior literature on socially responsible investment has contended that excluding “sin stocks” from a portfolio (negative screening) will reduce performance and increase risk. Further, incorporating stocks of firms with positive social responsibility scores (positive screening) will improve performance and reduce risk. We simulate portfolios designed to mimic typical equity mutual funds’ holdings and investigate these propositions. We remove the potentially confounding influences of differences in manager skill, transaction costs and fees, and conduct a clean experiment on the effect of positive and negative portfolio screening. We find no difference in the return or risk of screened and unscreened portfolios. We conclude that a typical socially responsible fund will neither gain nor lose from screening its portfolio. Copyright Springer Science+Business Media Dordrecht 2014

Suggested Citation

  • Jacquelyn Humphrey & David Tan, 2014. "Does it Really Hurt to be Responsible?," Journal of Business Ethics, Springer, vol. 122(3), pages 375-386, July.
    • Handle: RePEc:kap:jbuset:v:122:y:2014:i:3:p:375-386
    DOI: 10.1007/s10551-013-1741-z
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    Cited by:

    1. Joliet, Robert & Titova, Yulia, 2018. "Equity SRI funds vacillate between ethics and money: An analysis of the funds’ stock holding decisions," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 70-86.
    2. Al Ayoubi, Khalil & Enjolras, Geoffroy, 2022. "Does disinvestment from fossil fuels reduce the financial performance of responsible sovereign wealth funds?," Journal of Multinational Financial Management, Elsevier, vol. 64(C).
    3. Trinks, Arjan & Scholtens, Bert & Mulder, Machiel & Dam, Lammertjan, 2017. "Divesting Fossil Fuels: The Implications for Investment Portfolios," MPRA Paper 76383, University Library of Munich, Germany.
    4. Jedynak Tomasz, 2017. "Is it Worth Being Good? – The Efficiency and Risk of Socially Responsible Investing in Light of Various Empirical Studies," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 13(3), pages 1-14, September.
    5. José Luis Miralles-Quirós & María Mar Miralles-Quirós, 2020. "Who Knocks on the Door of Portfolio Performance Heaven: Sinner or Saint Investors?," Mathematics, MDPI, vol. 8(11), pages 1-18, November.
    6. Urquhart, Andrew & Zhang, Hanxiong, 2019. "The performance of technical trading rules in Socially Responsible Investments," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 397-411.
    7. Darren D. Lee & John Hua Fan & Victor S. H. Wong, 2021. "No more excuses! Performance of ESG‐integrated portfolios in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2407-2450, April.
    8. Arnaud Gougler & Sebastian Utz, 2020. "Factor exposures and diversification: Are sustainably screened portfolios any different?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(3), pages 221-249, September.
    9. Oscar V. De la Torre-Torres & Evaristo Galeana-Figueroa & José Álvarez-García, 2018. "Efficiency of the Public Pensions Funds on the Socially Responsible Equities of Mexico," Sustainability, MDPI, vol. 11(1), pages 1-18, December.
    10. Pablo Durán-Santomil & Luis Otero-González & Renato Heitor Correia-Domingues & Juan Carlos Reboredo, 2019. "Does Sustainability Score Impact Mutual Fund Performance?," Sustainability, MDPI, vol. 11(10), pages 1-17, May.
    11. Pyounggu Baek & Taesung Kim, 2021. "Socially Responsible HR in Action: Learning from Corporations Listed on the Dow Jones Sustainability Index World 2018/2019," Sustainability, MDPI, vol. 13(6), pages 1-17, March.
    12. Dumitrescu, Ariadna & Järvinen, Jesse & Zakriya, Mohammed, 2023. "Hidden Gem or Fool’s Gold: Can passive ESG ETFs outperform the benchmarks?," International Review of Financial Analysis, Elsevier, vol. 86(C).
    13. Pieter Jan Trinks & Bert Scholtens, 2017. "The Opportunity Cost of Negative Screening in Socially Responsible Investing," Journal of Business Ethics, Springer, vol. 140(2), pages 193-208, January.
    14. Meijui Sun & Ming-Chang Huang, 2022. "Does CSR reputation mitigate the impact of corporate social irresponsibility?," Asian Business & Management, Palgrave Macmillan, vol. 21(2), pages 261-285, April.
    15. Julian Amon & Margarethe Rammerstorfer & Karl Weinmayer, 2021. "Passive ESG Portfolio Management—The Benchmark Strategy for Socially Responsible Investors," Sustainability, MDPI, vol. 13(16), pages 1-21, August.
    16. Guidi, Marco & Sogiakas, Vasilios & Vagenas-Nanos, Evangelos & Verwijmeren, Patrick, 2020. "Spreading the sin: An empirical assessment from corporate takeovers," International Review of Financial Analysis, Elsevier, vol. 71(C).
    17. Vincent Margot & Christophe Geissler & Carmine de Franco & Bruno Monnier, 2021. "ESG Investments: Filtering versus Machine Learning Approaches," Applied Economics and Finance, Redfame publishing, vol. 8(2), pages 1-16, March.
    18. Rahat, Birjees & Nguyen, Pascal, 2022. "Risk-adjusted investment performance of green and black portfolios and impact of toxic divestments in emerging markets," Energy Economics, Elsevier, vol. 116(C).
    19. Plantinga, Auke & Scholtens, Bert, 2016. "The financial impact of divestment from fossil fuels," Research Report 16005-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    20. Emiel Duuren & Auke Plantinga & Bert Scholtens, 2016. "ESG Integration and the Investment Management Process: Fundamental Investing Reinvented," Journal of Business Ethics, Springer, vol. 138(3), pages 525-533, October.
    21. Andreas G. F. Hoepner & Lisa Schopohl, 2018. "On the Price of Morals in Markets: An Empirical Study of the Swedish AP-Funds and the Norwegian Government Pension Fund," Journal of Business Ethics, Springer, vol. 151(3), pages 665-692, September.
    22. Trinks, Arjan & Scholtens, Bert & Mulder, Machiel & Dam, Lammertjan, 2017. "Divesting Fossil Fuels," Research Report 17001-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    23. Fu, Yufen & Wright, Danika & Blazenko, George, 2020. "Ethical Investing Has No Portfolio Performance Cost," Research in International Business and Finance, Elsevier, vol. 52(C).
    24. Julian Amon & Margarethe Rammerstorfer & Karl Weinmayer, 2021. "Environmental Portfolios—Evidence from Screening and Passive Portfolio Management," Sustainability, MDPI, vol. 13(22), pages 1-23, November.

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