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Screening: Value enhancing or diminishing?

Author

Listed:
  • Yann Ferrat

    (CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes)

  • Frédéric Daty

    (OFI Asset Management)

  • Radu Burlacu

    (CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes)

Abstract

Using an international sample of environmental and social firm‐level ratings between 2007 and 2019, we form synthetic overlapping region‐based equity portfolios to examine the impact of screening stringency on abnormal returns and specific risk. While previous literature analyzes this relationship in a bidimensional setting, inferences made in this study are additionally robust to regional levels of market efficiency. Our results suggest that (1) screening stringency displays an inverted curvilinear relationship with risk‐adjusted returns and (2) the impact on specific risk is strictly increasing. Thus, portfolios that employ marginal and substantial screening incur the cost of responsible investing. However, moderate screening has the benefit of increasing performance without the burden of financing the least responsible corporations.

Suggested Citation

  • Yann Ferrat & Frédéric Daty & Radu Burlacu, 2023. "Screening: Value enhancing or diminishing?," Post-Print hal-03981388, HAL.
    • Handle: RePEc:hal:journl:hal-03981388
    DOI: 10.1111/beer.12453
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    Cited by:

    1. Luc Meunier & Sophie Richit, 2023. "Testing four nudges in socially responsible investments: Default winner by inertia," Post-Print hal-04325247, HAL.

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