The Eco-Efficiency Premium Puzzle

Posted: 5 May 2005

See all articles by Jeroen Derwall

Jeroen Derwall

Maastricht University - European Centre for Corporate Engagement; Tilburg University - School of Economics; Maastricht University - Department of Finance

Rob Bauer

Maastricht University

Nadja Guenster

University of Muenster - Finance Center Muenster; University of California, Berkeley

Kees C. G. Koedijk

Tilburg University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Abstract

Does socially responsible investing (SRI) lead to inferior or superior portfolio performance? This study focused on the concept of eco-efficiency, which can be thought of as the economic value a company creates relative to the waste it generates, and found that SRI produced superior performance. Based on Innovest Strategic Value Advisors' corporate eco-efficiency scores, the study constructed and evaluated two equity portfolios that differed in eco-efficiency. The high-ranked portfolio provided substantially higher average returns than its low-ranked counterpart over the 1995-2003 period. This performance differential could not be explained by differences in market sensitivity, investment style, or industry-specific factors. Moreover, the results remained significant for all levels of transaction costs, suggesting that the incremental benefits of SRI can be substantial.

Keywords: Portfolio Management, Equity Strategies, Performance Measurement and Evaluation, Performance Measurement, Corporate Governance

Suggested Citation

Derwall, Jeroen and Bauer, Rob and Guenster, Nadja and Koedijk, Kees G., The Eco-Efficiency Premium Puzzle. Financial Analysts Journal, Vol. 61, No. 2, pp. 51-63, March/April 2005. Available at SSRN: https://ssrn.com/abstract=713861

Jeroen Derwall (Contact Author)

Maastricht University - European Centre for Corporate Engagement ( email )

FEBA
Tongersestraat 53
Maastricht, Limburg 6200MD
Netherlands

HOME PAGE: http://www.corporate-engagement.com/

Tilburg University - School of Economics ( email )

P.O. Box 90153
NL-5000 LE Tilburg, Brabant
Netherlands

HOME PAGE: http://www.tilburguniversity.nl/webwijs/show/?uid=j.m.m.derwall

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.fdewb.unimaas.nl/finance/?page=member&id=175

Rob Bauer

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 3883871 (Phone)

Nadja Guenster

University of Muenster - Finance Center Muenster ( email )

Universitatsstr. 14-16
Muenster, 48143
Germany

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Kees G. Koedijk

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

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