Socially Responsible Investing: What to Expect?

We investigate a new dataset of internationally diverse socially responsible investing (SRI) exposures represented by rigorous rules-based and transparent SRI indices. We test the hypothesis whether the SRI screening process adds value to an investor's portfolio and find that return differences between SRI screened and conventional portfolios are not statistically significant. Our results also demonstrate that investors can expect higher risk-adjusted return levels vis-a-vis conventional portfolios. These findings are robust when accounting for common equity risk factors given by the CAPM as well as a 5-factor model. Our results also demonstrate that the benefit of SRI screened portfolios is not linked to a specific market sentiment and hence, investors can expect similar results out of sample.