Principle Guided Investing: The Use of Negative Screens and its Implications for Green Investors

WIF Institute of Economic Research Working Paper No. 05/45

27 Pages Posted: 24 Feb 2006

See all articles by Urs von Arx

Urs von Arx

ETH Zürich - Institute for Economic Research

Date Written: November 2005

Abstract

In recent years Socially Responsible Investment (SRI) has received considerable attention from both private investors as well as pension funds. Despite this proliferation in interest, several topics are still unresolved, namely selection methods, performance and effects regarding sustainability. This paper examines how green investors can induce firms to invest in cleaner production technology by using exclusionary investment screens. SRI is more likely to be successful when abatement costs are low and if principle guided investors are numerous and have homogenous investment principles. The transformation process becomes more probable when shares of clean firms are viewed as a separate asset class by all investors. Green investors have to accept lower returns from shares of clean firms, even in the case of positive externalities.

Keywords: Socially Responsible Investment, Pension Funds

JEL Classification: G10, Q5

Suggested Citation

von Arx, Urs, Principle Guided Investing: The Use of Negative Screens and its Implications for Green Investors (November 2005). WIF Institute of Economic Research Working Paper No. 05/45. Available at SSRN: https://ssrn.com/abstract=884440 or http://dx.doi.org/10.2139/ssrn.884440

Urs Von Arx (Contact Author)

ETH Zürich - Institute for Economic Research ( email )

Weinbergstrasse 35
WEH
Zurich, 8092
Switzerland

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