The Eco-Efficiency Premium Puzzle
AbstractThere exists a widespread consensus among mainstream academics and investors that socially responsible investing (SRI) leads to inferior, rather than superior, portfolio performance. Using Innovestâ€™s well-established corporate ecoefficiency scores, we provide evidence to the contrary. We compose two equity portfolios that differ in eco-efficiency characteristics and find that our highranked portfolio provided substantially higher average returns compared to its low-ranked counterpart over the period 1995-2003. Using a wide range of performance attribution techniques to address common methodological concerns, we show that this performance differential cannot be explained by differences in market sensitivity, investment style, or industry-specific components. We finally investigate whether this eco-efficiency premium puzzle withstands the inclusion of transaction costs scenarios, and evaluate how excess returns can be earned in a practical setting via a best-in-class stock selection strategy. The results remain significant under all levels of transactions costs, thus suggesting that the incremental benefits of SRI can be substantial.
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Bibliographic InfoPaper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2004-043-F&A.
Date of creation: 04 Jun 2004
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Web page: http://www.erim.eur.nl/
performance measurement; socially responsible investing (SRI); eco-efficiency; corporate environmental performance; style analysis;
Other versions of this item:
- Derwall, Jeroen & Guenster, Nadja & Bauer, Rob & Koedijk, Kees, 2005. "The eco-efficiency premium puzzle," Open Access publications from Maastricht University urn:nbn:nl:ui:27-19331, Maastricht University.
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