https://orcid.org/0000-0002-8413-7471
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ABSTRACT
This study investigates the realized performance of socially responsible investments (SRIs) in US and in European financial markets. We simulate a real investment strategy based on continuous portfolio optimization in the risk-return space. We assume the role of an investor who bases his or her choices on a ‘best in class' approach. We evaluate performance using the actual returns achieved by these strategies. Our results show that the socially responsible investor must pay a cost in terms of a lower investment-risk premium according to his or her appetite for risk and geographical area. In the US, SRI investments yield lower returns than non-SRI investments; in Europe, SRI investments yield lower returns and more volatility. Finally, SRIs have greater capacity to reduce risk in terms of both losses and recovery speed.
Acknowledgments
This work was supported by the University of Perugia [Project ‘Socially responsible investments: are they just a passing fashion or a real change of investor mentality?’ - 2018 Base Research Fund]
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 The Thomson Reuters ESG database covers over 6,000 companies globally and includes more than 400 ESG metrics, which largely come from corporate, public reporting (annual reports, CSR reports, company websites, and global media sources). The ESG scores measure companies’ ESG performance based on reported data in the public domain across 10 different ESG topics.
2 MAD is not interesting for our analysis. Knowing the highest loss, if it is not associated with the recovery time, is not useful. Thus, the MAD table here is omitted.