Executive Summary
Socially responsible investment funds employ negative and positive screens to select firms for their portfolios. These screens are based on environmental, social, or ethical criteria.
Trade-off: SRI funds could perform better than conventional ones as SRI funds comprise more carefully and actively selected firms. However, SRI funds could perform worse as the screening reduces the diversification potential which comes at a cost.
SRI performance measurement should involve an asset pricing model that captures investment styles. The Fama–French–Carhart model includes the market, firm size, growth opportunities, and share price momentum. In addition, the performance of SRI funds should be compared with the performance of conventional (non-SRI) funds.
Recent research shows that the performance SRI funds around the world is below the expected performance (measured by, for instance, the Fama–French–Carhart model). Furthermore, SRI funds do not outperform their conventional counterparts.
Introduction
Over the past decade, socially responsible investment (SRI), frequently also called ethical investment or sustainable investment, has grown rapidly around the world. SRI is a process that integrates social, environmental, and ethical considerations into investment decision making. Unlike conventional types of investment, SRI funds apply a set of investment screens to select or exclude assets based on ecological, social, corporate governance, or ethical criteria, and SRI often engages in the local communities and in shareholder activism to further corporate strategies towards the above aims.
- Page 1 of 5
- Next section What Type of Investment Screens Do SRI Funds Employ?
www.qfinance.com