SRI Funds: Does More Social Mean Less Financial Performance?
23 Pages Posted: 17 Dec 2010 Last revised: 8 Feb 2016
Date Written: December 9, 2010
Abstract
Due to the diversity amongst SRI funds it is too simplistic to divide the mutual fund universe in two blocks of SRI (socially responsible investment) funds and conventional funds. Therefore, we use a unique rating of UK SRI funds, which takes into account the screening criteria as well as the rigorousness of their application. In order to analyse the relationship between social and financial performance we use the 3-level-Carhart model. The underlying sample consists of 50 UK SRI funds whose returns between July 1998 and July 2010 are analysed. The results show that the portfolios with the highest social ratings underperform significantly, whilst the portfolios with the lowest social ratings do not significantly underperform the market benchmark. However, the analyses do not reveal a clear linear pattern. Therefore, more social performance does not automatically mean less financial performance.
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