Finding Value in Sustainable and Responsible Investments

Abstract

This paper assesses the characteristics and financial performance of a comprehensive set of passive sustainable and responsible investments (SRI) around the world. We contribute the novel finding that from a financial perspective, SRI portfolios pursue first and foremost a pure value strategy when using an undistorted value measure. This result holds irrespective of the index provider, the screening, and the weighting approach. It is also robust across international markets and to various asset pricing anomalies such as size, momentum, short-term reversal, betting-against-beta, and quality-minus-junk. We corroborate that SRI’s financial performance is neutral with slight indications that score-weighting or a combined approach using positive and negative environmental, social and governance (ESG) screens fare better.

Keywords: JEL Classification Code: G11, G15, M14 Sustainable and Responsible Investments, Performance Attribution, Performance Evaluation