On the Price of Morals in Markets: An Empirical Study of the Swedish AP-Funds and the Norwegian Government Pension Fund

64 Pages Posted: 24 Aug 2016

See all articles by Andreas G. F. Hoepner

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; European Commission's Platform on Sustainable Finance

Lisa Schopohl

ICMA Centre, Henley Business School, University of Reading

Date Written: May 24, 2016

Abstract

This study empirically analyses the exclusion of companies from investors’ investment universe due to a company’s business model (sector-based exclusion) or due to a company’s violations of international norms (norm-based exclusion). We conduct a time-series analysis of the performance implications of the exclusion decisions of two leading Nordic investors, Norway’s Government Pension Fund-Global (GPFG) and Sweden’s AP-funds. We find that their portfolios of excluded companies do not generate an abnormal return relative to the funds’ benchmark index. While the exclusion portfolios show higher risk than the respective benchmark, this difference is only statistically significant for the case of GPFG. These findings suggest that the exclusion of the companies generally does not harm funds’ performance. We interpret these findings as indicative that with exclusionary screening, as practiced by the sample funds, asset owners can meet the ethical objectives of their beneficiaries without compromising financial returns.

Keywords: ESG, GPFG, AP-funds, exclusions, exclusionary screening, divestment, negative screening, norm-based exclusions, sector-based exclusions, SRI

Suggested Citation

Hoepner, Andreas G. F. and Schopohl, Lisa, On the Price of Morals in Markets: An Empirical Study of the Swedish AP-Funds and the Norwegian Government Pension Fund (May 24, 2016). Journal of Business Ethics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2828040

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

European Commission's Platform on Sustainable Finance ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Lisa Schopohl (Contact Author)

ICMA Centre, Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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