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Principle guided investing: The use of negative screens and its implications for green investors

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Abstract

In recent years Socially Responsible Investment (SRI) has received considerable attention from both private investors as well as pension funds. Despite this proliferation in interest, several topics are still unresolved, namely selection methods, performance and effects regarding sustainability. This paper examines how green investors can induce firms to invest in cleaner production technology by using exclusionary investment screens. SRI is more likely to be successful when abatement costs are low and if principle guided investors are numerous and have homogenous investment principles. The transformation process becomes more probable when shares of clean firms are viewed as a separate asset class by all investors. Green investors have to accept lower returns from shares of clean firms, even in the case of positive externalities.

Suggested Citation

  • Urs von Arx, 2005. "Principle guided investing: The use of negative screens and its implications for green investors," CER-ETH Economics working paper series 05/45, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:05-45
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    References listed on IDEAS

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    1. 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(04), pages 431-449, December.
    2. Hamilton James T., 1995. "Pollution as News: Media and Stock Market Reactions to the Toxics Release Inventory Data," Journal of Environmental Economics and Management, Elsevier, vol. 28(1), pages 98-113, January.
    3. Michael Schröder, 2007. "Is there a Difference? The Performance Characteristics of SRI Equity Indices," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1-2), pages 331-348.
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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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