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Principle Guided Investing: The Use of Exclusionary Screens and Its Implications for Green Investors

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  • Urs von Arx

Abstract

This paper examines how "green" investors can induce firms to invest in clean production technology. The 1-period model incorporates heterogeneous agents - Markowitz investors and green investors – and two groups of firms working either with clean or polluting technology. Since green investors apply exclusionary environmental screens, some firms will invest in abatement technology in order to switch to a clean technology and thereby raising firm value. The number of firms working with clean technology will be larger, the higher the proportion of green investors, the lower costs of abatement technology, the higher diversification benefits of stocks of clean firms and if positive spill-overs for clean firms exist.

Suggested Citation

  • Urs von Arx, 2007. "Principle Guided Investing: The Use of Exclusionary Screens and Its Implications for Green Investors," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(I), pages 3-30, March.
    • Handle: RePEc:ses:arsjes:2007-i-1
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    References listed on IDEAS

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    1. Beltratti, Andrea, 2005. "Capital market equilibrium with externalities, production and heterogeneous agents," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 3061-3073, December.
    2. Heinkel, Robert & Kraus, Alan & Zechner, Josef, 2001. "The Effect of Green Investment on Corporate Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(4), pages 431-449, December.
    3. Anant K. Sundaram & Andrew C. Inkpen, 2004. "The Corporate Objective Revisited," Organization Science, INFORMS, vol. 15(3), pages 350-363, June.
    4. Larry D. Wall, 1995. "Some lessons from basic finance for effective socially responsible investing," Economic Review, Federal Reserve Bank of Atlanta, vol. 80(Jan), pages 1-12.
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    Cited by:

    1. Urs von Arx & Andreas Ziegler, 2008. "The Effect of CSR on Stock Performance: New Evidence for the USA and Europe," CER-ETH Economics working paper series 08/85, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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    More about this item

    Keywords

    Socially Responsible Investment; Pension Funds;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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