Measuring the financial and social performance of French mutual funds: A data envelopment analysis approach

Socially responsible investors pursue both financial and non-financial goals. In this paper, we attempt to assess the performance of French socially responsible mutual funds (SRMFs). We consider the data envelopment analysis (DEA) approach, which allows us to assign a unique efficiency score while combining financial and social characteristics, using various combinations within different types of risk (total risk, market risk, and downside risk). We report the list of funds found to be DEA efficient using various output-oriented models. We also compare our obtained results with the traditional and modern measures used in the literature (Sharpe, Treynor, and the information ratio). We contribute to the literature by testing the validity of the DEA methodology in the financial context. The findings have important implications for fund selection processes and would be mainly of interest to investors and fund managers who integrate environmental, social, and governance criteria into their investment choices.     

Investment with a Conscience: Examining the Impact of Pro-Social Attitudes and Perceived Financial Performance on Socially Responsible Investment Behavior

This article addresses the growing industry of retail socially responsible investment (SRI) profiled mutual funds. Very few previous studies have examined the final consumer of SRI profiled mutual funds. Therefore, the purpose of this study was to, in an exploratory manner, examine the impact of a number of pro-social, financial performance, and socio-demographic variables on SRI behavior in order to explain why investors choose to invest different proportions of their investment portfolio in SRI profiled funds. An ordinal logistic regression analysis on 528 private investors revealed that two of the three pro-social variables had a positive impact on how much the consumer invested in SRI profiled funds. Moreover, there was proof of a non-altruistic motive for investing in SRI as consumers who perceive that financial return of SRI is equal or better than “regular” mutual funds, invested a greater proportion of their portfolio in SRI profiled mutual funds. Furthermore, the results showed that women and better-educated investors were more likely to invest a greater proportion of their investment portfolio in SRI. Overall, the findings indicate that both financial perceptions and pro-social attitudes are connected to consumer investment in SRI.     

The Financial Performance of a Socially Responsible Investment Over Time and a Possible Link with Corporate Social Responsibility

This paper empirically examines the financial performance of a UK unit trust that was initially “conventional” and later adopted socially responsible investment (SRI) principles (ethical investment principles). Comparison is made with three similar conventional funds whose investment objectives remained unchanged. Analysis techniques employed in previous studies find similar results: mean risk-adjusted performance is unchanged by the switch to SRI, with no evidence of over-or under-performance relative to the benchmark market index by any of the four funds. More interestingly, changes in variability of returns over time are also modelled using generalised autoregressive conditional heteroscedasticity models, not previously applied to SRI funds so far as is known. Results show a temporary increase in variability of returns, followed by a return to previous levels after around 4 years. Evidence shows the increased variability to be associated with the adoption of SRI rather than with a change in fund management. Possible explanations for the subsequent reduction in variability include the spread of corporate social responsibility activities by firms and learning by fund managers. In addition to reporting on a previously unobserved phenomenon, this paper raises questions for further research.     

Does socially responsible mutual fund performance vary over the business cycle? New insights on the effect of idiosyncratic SR features

This study analyses the performance and market timing of US socially responsible (SR) mutual funds in relation to business cycle regime shifts and different grouping criteria: Ethical strategy focus, SR attributes scores and Morningstar category. Different methodologies are applied and results highlight the importance of considering specific benchmarks related to the investment style in evaluating the SR fund performance. Our results show that, in aggregate, the abnormal performance of SR funds is negative and significant in expansion periods, but no significant differences are found in recession periods. When specific benchmarks are considered, performance improves in recession periods, particularly for environmental funds, those with high SR attributes scores, and funds from the nine Morningstar style box categories. Market timing of SR funds takes positive values and is partially significant. Previous evidence of negative timing after a recent financial crisis vanishes when specific benchmarks are considered. For comparative purposes the performance of conventional US mutual funds is also analysed. There are no significant differences between the performance of SR and conventional mutual funds when a fair comparison is made within the same style categories. When all the SR funds are considered, they underperform conventional funds in expansion sub‐periods, but in recession sub‐periods they perform better, although the differences observed are not significant.     

A Critical Review of Sustainable Business Indices and their Impact

Most studies into the performance of socially responsible investment vehicles have focused on the performance of sustainable or socially responsible mutual funds. This research has been complemented recently by a number of studies that have examined the performance of sustainable investment indices. In both cases, the majority of studies have concluded that the returns of socially responsible investment vehicles have either underperformed, or failed to outperform, comparable market indices. Although the impact of sustainable indices to date has been limited, the recent launch of sustainable indices by Dow Jones and FTSE suggests that more attention is being paid to the subject by financial markets, investors, and companies. This development raises a number of important issues which are reviewed in this article: (a) the performance of indices compared with their benchmark indices; (b) the methodologies employed in compiling the indices; and (c) the impact of the indices on companies and the investment community. The article concludes with a number of suggestions for areas that merit future research.     

Do Socially Responsible Fund Managers Really Invest Differently?

To date, research into socially responsible investment (SRI), and in particular the socially responsible investment funds industry, has focused on whether investing in SRI assets has any differential impact on investor returns. Prior findings generally suggest that, on a risk-adjusted basis, there is no difference in performance between SRI and conventional funds. This result has led to questions about whether SRI funds are really any different from conventional funds. This paper examines whether the portfolio allocation across industry sectors and the stock-picking ability of SRI managers are different when compared to conventional fund managers. The study finds that SRI funds exhibit different industry betas consistent with different portfolio positions, but that these differences vary from year to year. It is also found that there is little difference in stock-picking ability between the two groups of fund managers.     

Selection of Socially Responsible Portfolios Using Hedonic Prices

This paper presents a novel framework for selecting socially responsible investment (SRI) portfolios. The Hedonic Price Method (HPM) is applied to obtain an evaluation of SRI criteria that is integrated into a multi-objective mathematical programming model. The HPM breaks away from the traditional view that goods are the direct object of utility; on the contrary, it assumes that utility is derived from the properties or characteristics of the goods themselves. As far as the investment decision is concerned, we assume that socially responsible investmentmutual funds (SRI funds) constitute heterogeneous goods. Our approach allows us to obtain a portfolio, the financial performance of which is similar to that which the investor would have reached if he or she had not taken into account social, ethical, and environmental considerations when making his or her investment decisions. This is achieved by designing a two-stage multi-objective mathematical programming procedure. In the first stage, we achieve the maximum level of financial satisfaction that the investor can receive. In the second stage, the portfolio with the best financial–social behavior is built. For the purpose of this second stage, the first stage portfolio is used as a benchmark for the financial performance of a socially responsible portfolio. To apply this methodology, we use portfolios composed of socially responsible and conventional mutual funds domiciled in Spain.     

Are socially responsible exchange-traded funds paying off in performance?

This study examines the Socially Responsible (SR) exchange-traded funds (ETFs) by comparing their risk-adjusted performance with a matched group of conventional ETFs in the U.S. equity market. In contrast to prior studies that focus on actively managed mutual funds, we find that the risk-adjusted returns of SR ETFs are significantly lower than those of conventional ETFs during the 2005–2020 period. Such underperformance is only observed in non-crisis periods but not in economic crisis periods (i.e., the 2020 pandemic recession and 2008 financial turmoil). We attribute the observed underperformance of SR ETFs during the non-crisis periods to their limited diversification of unsystematic risks resulting from various negative or positive screens employed in the funds. We also find that net fund flows of the SR ETFs are less sensitive to past negative performance than are conventional fund flows. Collectively, our findings suggest that, instead of seeking wealth maximization, socially conscious investors may choose SR ETFs to gain non-economic utility.     

Investing in Socially Responsible Companies is a must for Public Pension Funds – Because there is no Better Alternative

>With assets of over US$1.0 trillion and growing, public pension funds in the United States have become a major force in the private sector through their holding of equity positions in large publicly traded corporations. More recently, these funds have been expanding their investment strategy by considering a corporations long-term risks on issues such as environmental protection, sustainability, and good corporate citizenship, and how these factors impact a companys long-term performance. Conventional wisdom argues that the fiduciary responsibility of the pension funds trustees must be solely focused on their beneficiaries and, therefore, their investment criteria must be based strictly on narrowly defined financial measures. It is also asserted that well-established financial measurements of corporate performance already include long-term risk assessment through discounted present value of future flow of earnings. Consequently, all other criteria are contrary to the best interest of the pension funds beneficiaries. In this paper, we assert that, contrary to conventional wisdom, pension funds, and for that matter other mutual funds, must be concerned with the long-term survival and growth of corporations. These measures are generally referred to socially responsible investing (SRI) and when applied to corporations, it is termed socially responsible corporate conduct (SRCC). We demonstrate that current measurement of future risk assessment invariably understates, and quite often completely overlooks, these long-term risks because of the inherent bias towards short-run on the part of financial intermediaries whose compensation depends greatly on short-term results. Furthermore, there is ample evidence to suggest that these intermediaries have been engaging in self-serving practices and thus failing in their duties to serve their clients, i.e. pension funds, best interests. Because of their large holdings in the total market as well as individual companies, these funds cannot easily divest from poorly performing companies without destabilizing the companies stock and overall markets. Hence, they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long-term aspects of their operations in terms of their impact on environment, sustainability, and community welfare, to name a few. We argue that an exclusionary, and even a primary, focus on short-term financial criteria is no longer a viable option. It also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance. Thus socially responsible investing practices are not merely discretionary and desirable activities; they are a necessary imperative, which both the corporations and public pension funds, and other large institutional holders, will ignore at serious peril to themselves. Finally, the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities. It also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long-term corporate survival and growth in the context of a changing economic, environmental and socio-political dynamic.     

Keeping Ethical Investment Ethical: Regulatory Issues for Investing for Sustainability

Regulation must target the financial sector, which often funds and profits from environmentally unsustainable development. In an era of global financial markets, the financial sector has a crucial impact on the state of the environment. The long-standing movement for ethically and socially responsible investment (SRI) has recently begun to advocate environmental standards for financiers. While this movement is gaining more adherents, it has increasingly justified responsible financing as a path to be prosperous, rather than virtuous. This trend partly owes to how financial institutions view their legal responsibilities. The business case motivations that now predominantly drive SRI are not sufficient to make the financial sector a means to sustainable development. Some modest legal reforms to improve the quality and extent of SRI have yet to make a tangible difference. A more ambitious strategy to promote SRI for environmental sustainability is possible, based on reforming the fiduciary duties of financial institutions. Such duties, tied to concrete performance standards, could make financiers invest in more ethically responsible ways. Other collateral reforms to financial markets, including improved corporate environmental reporting, are required to promote sustainability.     

Socially Responsible Institutional Investment in Private Equity

This article studies institutional investor allocations to the socially responsible asset class. We propose two elements influence socially responsible institutional investment in private equity: internal organizational structure, and internationalization. We study socially responsible investments from Dutch institutional investments into private equity funds, and compare socially responsible investment across different asset classes and different types of institutional investors (banks, insurance companies, and pension funds). The data indicate socially responsible investment in private equity is 40–50% more common when the decision to implement such an investment plan is centralised with a single chief investment officer. Socially responsible investment in private equity is also more common among institutional investors with a greater international investment focus, and less common among fund-of-fund private equity investments.     

How do Leading Retail MNCs Leverage CSR Globally? Insights from Brazil

In this article, we shed light on the debate about the financial performance of socially responsible investment (SRI) mutual funds by separately analyzing the contributions of before-fee performance and fees to SRI funds’ performance, and by investigating the role played by fund management companies in the determination of those variables. We apply the matching estimator methodology to obtain our results and find that in the period 1997–2005, US SRI funds had better before- and after-fee performance than conventional funds with similar characteristics. The differences, however, are driven exclusively by SRI funds run by management companies specialized in SRI. While these funds significantly outperform similar conventional funds, funds run by companies not specialized in SRI underperform their matched conventional funds. We find no significant differences in fees between SRI and conventional funds except in one case: SRI funds are cheaper than conventional funds run by the same management company.     

Performance of Ethical Mutual Funds in Spain: Sacrifice or Premium?

There is currently much debate in the economic literature about whether ethical investment involves a financial sacrifice or premium. One of the most common methods of testing this compares the financial performance of ethical investment funds with that of other funds not considered “socially responsible” or ethical. The majority of these research studies evaluate the performance of the ethical funds according to classic measures, whereby different financial markets, in different countries and for different periods of time serve as reference for evaluation. The ultimate conclusion of all of these studies is that there are no significant differences between the performance results of one type of funds and the other. In Spain, ethical investment funds are still an incipient sector of investment. To date, the Spanish market has not been included in any type of analysis of these characteristics. Therefore the main objective of this article is to compare the financial performance of ethical investment funds to that of other funds in the Spanish retail market. We propose the aggregate type of analysis as the Spanish ethical investment funds have experienced a weaker development in comparison to those of other developed countries. In the first step we suggest the financial performance to be compared by style analysis since the asset distribution of the Spanish Social Return Investment (SRI) funds differs from the European trend. In particular, we use the multifactor regression model with style benchmarks. We found that their financial performance is in all cases superior or similar to that achieved by the rest of the funds. In the second step, to achieve a more robust and homogeneous comparison, we used the bootstrap method, comparing ethical and non-ethical fund subsamples by homogeneous groups. No significant differences between these two types of funds have been found. Thus, if we assume the positive o neutral effect of ethical investment on investor utility in the retail Spanish market the financial and social performance (FSP) of ethical funds will be, in aggregate, superior to the FSP achieved by conventional funds. In conclusion, the financial performance of ethical mutual funds in Spain is no sacrifice.     

Islamic,socially responsible,and conventional market comovements: Evidence from stock indices

This article extends the literature on ethical investment risks, correlations, and comovements. Through a sample of 17 Islamic, socially responsible investment (SRI), and conventional stock indices, we investigate cointegration and dynamic correlations for the period 2005–2015. We also examine these stock indices’ responses to two major economic factors, namely, oil prices and market volatility. Our results show cointegration between Islamic, SRI and conventional stock indices, and comovements with mutual causalities. During crises, dynamic correlations tend to spike; however, quite a different pattern emerges during postcrisis periods when there is more variability in conditional covariances. Finally, we provide evidence that all three types of stock indices react positively to oil price changes, but negatively to global equity market volatility, albeit with different magnitudes. Overall, investors can obtain portfolio diversification benefits through SRI and Islamic stock indices, particularly in postcrisis periods.     

Does it Really Hurt to be Responsible?

Prior literature on socially responsible investment has contended that excluding “sin stocks” from a portfolio (negative screening) will reduce performance and increase risk. Further, incorporating stocks of firms with positive social responsibility scores (positive screening) will improve performance and reduce risk. We simulate portfolios designed to mimic typical equity mutual funds’ holdings and investigate these propositions. We remove the potentially confounding influences of differences in manager skill, transaction costs and fees, and conduct a clean experiment on the effect of positive and negative portfolio screening. We find no difference in the return or risk of screened and unscreened portfolios. We conclude that a typical socially responsible fund will neither gain nor lose from screening its portfolio.     

Green and Good? The Investment Performance of US Environmental Mutual Funds

Increased concern for the environment has increased the number of investment opportunities in mutual funds specialized in promoting responsible environmental attitudes. This article examines the performance and risk sensitivities of US green mutual funds vis-à-vis their conventional peers. We also analyze and compare this performance relative to other socially responsible investing (SRI) mutual funds. In order to implement this analysis, we apply a CAPM-based methodology and find that in the 1987–2009 period, environ- mental funds had lower performance than conventional funds with similar characteristics. However, if we focus on a more recent period (2001–2009), green funds achieved adjusted returns not significantly different from the rest of SRI and conventional mutual funds.     

The Ethical Mutual Fund Performance Debate: New Evidence from Canada

Although the academic interest in ethical mutual fund performance has developed steadily, the evidence to date is mainly sample-specific. To tackle this critique, new research should extend to unexplored countries. Using this as a motivation, we examine the performance and risk sensitivities of Canadian ethical mutual funds vis-à-vis their conventional peers. In order to overcome the methodological deficiencies most prior papers suffered from, we use performance measurement approaches in the spirit of Carhart (1997, Journal of Finance 52(1): 57–82) and Ferson and Schadt (1996, Journal of Finance 51(2): 425–461). In doing so, we investigate the aggregated performance and investment style of ethical and conventional mutual funds and allow for time variation in the funds’ systematic risk. Our␣Canadian evidence supports the conjecture that any␣performance differential between ethical mutual funds and their conventional peers is statistically insignificant.      

Harmony,Justice, Confusion,and Conflict in Family Firms: Implications for Ethical Climate and the “Fredo Effect”

In this study, we analyze the financial performance and the managerial abilities of religious mutual fund managers, implementing a comparative analysis with conventional mutual funds. We use a broad sample, free of survivorship bias, of religious equity mutual funds from the US market, for the period from January 1994 to September 2010. We build a matched-pair conventional sample in order to compare the results obtained for both kinds of mutual fund managers. We analyze stock-picking and market timing abilities, topics widely neglected for the specific case of religious mutual fund managers. We also study style timing abilities. As far as we are aware, this aspect has not been studied previously for religious mutual fund managers. Our results indicate that religious mutual fund managers underperform both the market and their conventional counterparts. This result is driven by negative stock-picking ability which could be generated by excluding “Sin” stocks from their portfolios. Moreover, they are not able to time the market or any of the following styles: size, book-to-market, and momentum.     

Sin sectors and negative screening

In this research, I analyse how exposure to sin sectors impacts the financial performance of socially responsible (SR) funds. I also analyse the question of whether or not these funds keep their word and are less exposed to the controversial sectors that they claim to exclude in their prospectuses. Additionally, I analyse how local political and religious factors exert an influence on the exposure of SR funds to sin sectors. Consequently, I analyse a sample comprising 136 SR mutual funds that were domiciled in the U.S. market in the period March 2017–April 2020 and who invest in domestic and global equity, of which 92 implement negative screens on at least 1 of 12 controversial activities. My results show that for seven (three) of the controversial sectors that were analysed, the exposure of SR funds to these sectors jeopardises (improves) their financial performance. Furthermore, SR mutual funds who perform negative screens tend to live up to their name and are less exposed to the sector/s that they claim to exclude. In addition, SR mutual funds managed by companies located in Democrat-leaning states are less exposed to sin sectors, and that the effect of local religiosity depends on the specific sector analysed.     

The performance of socially responsible equity mutual funds: Evidence from Sweden

This paper presents a comprehensive analysis of socially responsible (SR) funds in Sweden by assessing fund managers' abilities and performances across different market states. These issues are analyzed at the aggregate and individual fund levels. The paper also presents several new statistical tests that allow more precise inferences about differences in performance and the variability in fund returns arising from different benchmarks. In general, SR and conventional funds perform similarly to the market. At the aggregate level, SR funds investing in Sweden and Europe perform similarly to conventional funds, while those investing globally tend to underperform. This underperformance seems to be linked with poor selectivity abilities of global SR fund managers. For individual funds, the performance of both types of funds is more similar. Most funds perform similarly in crisis periods compared to non‐crisis periods. Overall, our results are consistent with a mature market for SR investing and support the view that the similar performance of SR and conventional funds is associated with the mainstreaming of SR investment in Sweden. These findings encourage SR investing both by socially conscious investors, who wish to align their social values with their investment decisions, as well as by conventional investors, who will not be penalized by investing in these funds. We also call attention to the difficulties investors face when trying to identify funds with high social standards, considering that there is scarce information on the extent to which each fund (SR or conventional) holds stocks that comply with ethical and social criteria.