The Eco-Efficiency Premium Puzzle

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Financial Analysts Journal
March 2005 | Vol. 61 | No. 2 | 12 pages
Source: CFA Institute
Jeroen Derwall Nadja Guenster Rob Bauer Kees Koedijk

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Abstract

Does socially responsible investing (SRI) lead to inferior or superior portfolio performance? This study focused on the concept of “eco-efficiency,” which can be thought of as the economic value a company creates relative to the waste it generates, and found that SRI produced superior performance. Based on Innovest Strategic Value Advisors' corporate eco-efficiency scores, the study constructed and evaluated two equity portfolios that differed in eco-efficiency. The high-ranked portfolio provided substantially higher average returns than its low-ranked counterpart over the 1995–2003 period. This performance differential could not be explained by differences in market sensitivity, investment style, or industry-specific factors. Moreover, the results remained significant for all levels of transaction costs, suggesting that the incremental benefits of SRI can be substantial.

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Topics
Portfolio Management
    :
  • Equity Portfolio Management Strategies
|
Performance Measurement and Evaluation
    :
  • Return Measures (Arithmetic, Geometric, Time Weighted, Dollar Weighted)
|
Corporate Finance
    :
  • Corporate Governance
Credits · About the CE Program
1 CE (including 0 SER) Manage CE Credits

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