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The Performance of Socially Responsible Funds: Does the Screening Process Matter?

Author

Listed:
  • Gunther Capelle-Blancard

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Stephanie Monjon

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - AgroParisTech - EHESS - École des hautes études en sciences sociales - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement)

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.

Suggested Citation

  • Gunther Capelle-Blancard & Stephanie Monjon, 2014. "The Performance of Socially Responsible Funds: Does the Screening Process Matter?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00802363, HAL.
  • Handle: RePEc:hal:cesptp:hal-00802363
    DOI: 10.1111/j.1468-036X.2012.00643.x
    Note: View the original document on HAL open archive server: https://hal-enpc.archives-ouvertes.fr/hal-00802363
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    1. Gunther Capelle-Blancard & Stéphanie Monjon, 2010. "Socially Responsible Investing: it Takes More than Words," Working Papers 2010-15, CEPII research center.
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    Cited by:

    1. Nelson Areal & Maria Cortez & Florinda Silva, 2013. "The conditional performance of US mutual funds over different market regimes: do different types of ethical screens matter?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(4), pages 397-429, December.
    2. Leite, Paulo & Cortez, Maria Céu, 2014. "Style and performance of international socially responsible funds in Europe," Research in International Business and Finance, Elsevier, vol. 30(C), pages 248-267.
    3. Leite, Paulo & Cortez, Maria Céu, 2015. "Performance of European socially responsible funds during market crises: Evidence from France," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 132-141.
    4. Ashraf, Dawood & Khawaja, Mohsin, 2016. "Does the Shariah screening process matter? Evidence from Shariah compliant portfolios," Journal of Economic Behavior & Organization, Elsevier, vol. 132(S), pages 77-92.
    5. Erragragui, Elias & Revelli, Christophe, 2016. "Is it costly to be both shariah compliant and socially responsible?," Review of Financial Economics, Elsevier, vol. 31(C), pages 64-74.
    6. Amélie Charles & Olivier Darné & Jessica Fouilloux, 2016. "The impact of screening strategies on the performance of ESG indices," Working Papers hal-01344699, HAL.
    7. Bertrand, Philippe & Lapointe, Vincent, 2015. "How performance of risk-based strategies is modified by socially responsible investment universe?," International Review of Financial Analysis, Elsevier, vol. 38(C), pages 175-190.
    8. Barkó, Tamás & Cremers, M. & Renneboog, Luc, 2017. "Shareholder Engagement on Environmental, Social, and Governance Performance," Discussion Paper 2017-040, Tilburg University, Center for Economic Research.
    9. repec:eee:spacre:v:19:y:2016:i:1:p:55-76 is not listed on IDEAS
    10. 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.
    11. Eduardo Ortas & José Moneva & Roger Burritt & Joanne Tingey-Holyoak, 2014. "Does Sustainability Investment Provide Adaptive Resilience to Ethical Investors? Evidence from Spain," Journal of Business Ethics, Springer, vol. 124(2), pages 297-309, October.
    12. Yunieta Nainggolan & Janice How & Peter Verhoeven, 2016. "Ethical Screening and Financial Performance: The Case of Islamic Equity Funds," Journal of Business Ethics, Springer, vol. 137(1), pages 83-99, August.
    13. Sebastian Rathner, 2013. "The Influence of Primary Study Characteristics on the Performance Differential Between Socially Responsible and Conventional Investment Funds: A Meta-Analysis," Journal of Business Ethics, Springer, vol. 118(2), pages 349-363, December.
    14. Erragraguy, Elias & Revelli, Christophe, 2015. "Should Islamic investors consider SRI criteria in their investment strategies?," Finance Research Letters, Elsevier, vol. 14(C), pages 11-19.
    15. repec:ris:isecst:0164 is not listed on IDEAS
    16. María del Mar Miralles-Quirós & José Luis Miralles-Quirós, 2017. "Improving Diversification Opportunities for Socially Responsible Investors," Journal of Business Ethics, Springer, vol. 140(2), pages 339-351, January.
    17. Thomas Walker & Kerstin Lopatta & Thomas Kaspereit, 2014. "Corporate sustainability in asset pricing models and mutual funds performance measurement," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(4), pages 363-407, November.
    18. Rathner, Sebastian, 2013. "The Relative Performance of Socially Responsible Investment Funds. New Evidence from Austria," Working Papers in Economics 2013-1, University of Salzburg.

    More about this item

    Keywords

    ratings; sustainable and responsible investment; Socially responsible investment (SRI); strategy distinctiveness index; portfolio choice; ethical investment; corporate social responsibility (CSR);

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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