Chapter1
Responsible Investing
Values-Driven and Profit-Seeking (S)RI
Dr. Jeroen Derwall
November 20, 2012
Equity Analysis and Portfolio Management (EBC4112) – Week 4
Agenda
What is (S)RI and related concepts
Equity RI: theory and evidence
“Values” and “social norms”: what are the effects of ethical exclusion on returns?
What do we need to know to obtain positive returns/alpha? Errors in expectations
Segmentation of the SRI movement solves “performance puzzle”
Both controversial and responsible stocks can have positive “alpha” - in short run
New evidence: is alpha-driven RI feasible in long run?
Conclusion
What is (Socially) Responsible Investing [(S)RI]?
Financial Markets & Sustainable Development
(S)RI is growing tremendously but is still not mainstream
Financial markets can perhaps promote sustainable development… But are responsible investments in line with investors’ return/risk objectives?
Debates about conflict between social and financial objectives of investment
Is this a problem?
What do you think of these statements?
“SRI is a dumb idea, screaming with contradictions, and yielding sub-optimal returns”
“… we believe that, in the long run, an investment approach that identifies and invests in companies with sustainable business models serves shareholders best.
Towards that end, we have developed a process that combines thorough financial analysis with another, critically important set of factors that most investment managers ignore…” (PAX World Investments, 2010)
View of the “mainstream” nowadays?
Institutions increasingly justify responsible investment using the argument that CSR/ESG criteria positively contribute to investment performance (alpha).
More than 850 institutions have signed UN-backed principles for responsible investing (PRI).
“as institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In
Values-Driven and Profit-Seeking (S)RI
Dr. Jeroen Derwall
November 20, 2012
Equity Analysis and Portfolio Management (EBC4112) – Week 4
Agenda
What is (S)RI and related concepts
Equity RI: theory and evidence
“Values” and “social norms”: what are the effects of ethical exclusion on returns?
What do we need to know to obtain positive returns/alpha? Errors in expectations
Segmentation of the SRI movement solves “performance puzzle”
Both controversial and responsible stocks can have positive “alpha” - in short run
New evidence: is alpha-driven RI feasible in long run?
Conclusion
What is (Socially) Responsible Investing [(S)RI]?
Financial Markets & Sustainable Development
(S)RI is growing tremendously but is still not mainstream
Financial markets can perhaps promote sustainable development… But are responsible investments in line with investors’ return/risk objectives?
Debates about conflict between social and financial objectives of investment
Is this a problem?
What do you think of these statements?
“SRI is a dumb idea, screaming with contradictions, and yielding sub-optimal returns”
“… we believe that, in the long run, an investment approach that identifies and invests in companies with sustainable business models serves shareholders best.
Towards that end, we have developed a process that combines thorough financial analysis with another, critically important set of factors that most investment managers ignore…” (PAX World Investments, 2010)
View of the “mainstream” nowadays?
Institutions increasingly justify responsible investment using the argument that CSR/ESG criteria positively contribute to investment performance (alpha).
More than 850 institutions have signed UN-backed principles for responsible investing (PRI).
“as institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In