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

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 (...

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Bibliographic Details
Published in:European financial management : the journal of the European Financial Management Association 2014-06, Vol.20 (3), p.494-520
Main Authors: Capelle-Blancard, Gunther, Monjon, Stéphanie
Format: Article
Language:English
Subjects:
corporate social responsibility (CSR)
Economics and Finance
ethical investment
Financial management
Financial performance
Humanities and Social Sciences
Investment
Investment trusts
Mutual funds
portfolio choice
ratings
Social investing
Socially responsible investment (SRI)
Strategic planning
strategy distinctiveness index
Studies
sustainable and responsible investment
United Nations
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Summary: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.
ISSN:1354-7798
1468-036X
DOI:10.1111/j.1468-036X.2012.00643.x