The Effect of Social Screening on Bond Mutual Fund Performance

58 Pages Posted: 26 Apr 2014 Last revised: 4 Jul 2015

See all articles by Hans-Martin Henke

Hans-Martin Henke

Catholic University of Eichstaett-Ingolstadt

Thomas Maehlmann

Catholic University of Eichstaett-Ingolstadt - Chair of Banking and Finance

Date Written: June 1, 2015

Abstract

This study measures the financial impact of screening for environmental, social and governance (ESG) criteria on corporate bond portfolios. Specifically, risk-adjusted financial performance of 103 US and Eurozone socially responsible bond funds is compared with a matched sample of conventional funds. During the period 2001-2014 socially responsible bond funds outperform by half a percent annually. An evaluation of fund holdings and a performance attribution analysis suggest that this outperformance is directly related to the exclusion of corporate bond issuers with poor corporate social responsibility (CSR) activities. A separation of crisis and non-crisis periods further indicates that the outperformance occurs especially during recessions or bear market periods. We confirm this crisis related return effect out of sample among socially screened bond indices. Moreover, results are robust to alternative definitions of sustainability, survivorship-bias, fund characteristics and stable in the US and Eurozone sub-samples.

Keywords: Responsible investing, fixed income, bond mutual funds, performance measurement, environmental, social and governance (ESG) screens

JEL Classification: G11, G23

Suggested Citation

Henke, Hans-Martin and Maehlmann, Thomas, The Effect of Social Screening on Bond Mutual Fund Performance (June 1, 2015). Available at SSRN: https://ssrn.com/abstract=2429221 or http://dx.doi.org/10.2139/ssrn.2429221

Hans-Martin Henke (Contact Author)

Catholic University of Eichstaett-Ingolstadt ( email )

Auf der Schanz 49
Ingolstadt, D-85049
Germany

Thomas Maehlmann

Catholic University of Eichstaett-Ingolstadt - Chair of Banking and Finance ( email )

Auf der Schanz 49
Ingolstadt, 85049
Germany
+49-841/937-1883 (Phone)
+49-841/937-2881 (Fax)

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