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The effects of the fossil fuel divestment campaign on stock returns
Abstract
Recent campaigns by environmental activists have placed pressure on institutional investors to divest holdings of oil, coal and other fossil fuel industry stocks. A substantial literature has emerged to evaluate the effects of this divestment campaign on stock returns. Findings have been mixed, with some studies identifying above-market returns to socially responsible investing and others documenting a premium on the targeted stocks. We calculate the rate of return for a fossil fuel-free portfolio and compare it to the return for the Standard & Poor's 500 index. We also compare a portfolio consisting only of fossil-fuel oriented stocks with the S&P 500. Over various sample periods ranging from January 4, 2010 to June 29, 2018, the low-carbon portfolio typically earns a slightly higher rate of return than the overall market, due to the poor performance of the fossil fuel industry. These findings suggest that in the case of fossil fuels divestment, given the timeline of the movement, socially responsible investing has not been costly in terms of forgoing market returns.
... Existing research agrees that the majority of fossil fuel assetsin particular capital intensive hydrocarbons and coal power plantsare exposed to stranding risk [46]. Divesting from fossil fuels is therefore being established as a risk-averse, sound business strategy [47,48]. What is more, the ever-increasing politicization of climate change and the increasingly tangible political action against it have turned divestment into much more. ...
... Fossil fuel assets acquired by the company, primarily coal power plants, used to be pillars of the traditional utility portfolios but are not anymore. Now, the same utilities are rushing to get rid of them [47,48]. EPH participates in the innovative capacity remuneration mechanisms, but these very mechanisms often cement the practice of coal combustion and delay the shift from high to low carbon technologies. ...
... operating them enabled it to unlock profits that would be unthinkable for companies that show a more common shareholder structure or that are more concerned with corporate social responsibility. Consequently, EPH's carbon-intensive assets will remain profitable longer and their eventual decommissioning will be more costly, effectively allowing the company to at least partially avoid the stranded asset risk [47,48]. In addition, the availability of profitable back-up capacity which the company brings to the market may compromise the development of cleaner alternatives and thus also the general goal of decarbonization. ...
Parallel to the ongoing energy transition, Energetický a průmyslový holding (EPH) has emerged as one of the leading energy companies in the EU. Since its expansion started in 2009, the company has acquired assets worth EUR 16.7 billion while entering eight European markets, establishing itself as a crucial EU natural gas stakeholder and essential coal mining company in Germany and Poland, collecting around 26 GW of installed electricity generation capacity, and becoming the second largest polluter in the EU ETS. Unlike other rising stars of the shifting socio-technical regime such as Orsted or Tesla, EPH swims against the current. Depending on the perspective, it acts like either a scavenger, buying out “dirty” coal assets from energy incumbents, or a profiteer, taking advantage of the recently introduced capacity mechanisms which give an afterlife to such assets, thereby extracting rents from transition policies. EPH thus simultaneously contributes to the transition and compromises the goal of decarbonization.
This paper offers a detailed analysis of EPH’s investment strategy. The resulting image is one of a company with Europe-wide aspirations but the structure and behaviour of a garage start-up—an image that does not fit the traditional perception of transition as a conflict between status quo and niche actors over the fate of the regime. EPH is interested not in the end-state of the regime change but in the change itself. We conclude by discussing what the emergence of such an actor could mean for current European energy transition policies.
... Consistent with this position, Guo et al. (2022) show that the effect of hydrocarbon divestment on the risk-adjusted performance of fossil fuel stocks is neutral. Some studies establish mild evidence of the depressing effect of the divestment (see, Plantinga and Scholtens 2021;Halcoussis and Lowenberg 2019). For instance, Halcoussis and Lowenberg (2019) report results which show that hydrocarbon companies' stocks slightly underperform clean energy stocks owing to divestment from the former. ...
... Some studies establish mild evidence of the depressing effect of the divestment (see, Plantinga and Scholtens 2021;Halcoussis and Lowenberg 2019). For instance, Halcoussis and Lowenberg (2019) report results which show that hydrocarbon companies' stocks slightly underperform clean energy stocks owing to divestment from the former. Similarly, Plantinga and Scholtens (2021) conclude that moving investments away from hydrocarbon companies does not inflict much financial harm to investors as long as fossil fuels continue to dominate the global energy mix. ...
Driven by the evident uncertainties associated with clean energy stocks, mainly originating from energy transition risks, this article investigates the effect of carbon price fluctuation on the extent and persistence of risk in the NASDAQ clean energy stock market. Using GARCH and E-GARCH models with exogenous variables, while controlling for technology stock price, the article documents that carbon price significantly positively affects clean energy stock volatility. This suggests that prices rise and fall in carbon emission trading markets are perceived as bad and good news respectively in the NASDAQ clean energy financial market. This finding signifies that investors interested in clean energy stocks should factor in incidents responsible for turbulences in carbon trading markets when evaluating and trying to understand the nature of risk in the NASDAQ clean energy stock market. The significance of this finding is also relevant to policymakers concerned with carbon emission reduction and successful energy transition. ARTICLE HISTORY
... The motive for this campaign is to pressure institutional investors to sell stock in these companies on the grounds that fossil fuels contribute to climate change. These actions are part of a broader movement towards "ethical investing," which includes environmental, social and corporate governance (ESG) objectives that complement corporate social responsibility (CSR) initiatives [266]. For instance, BlackRock, the world's largest fund manager with around 7 trillion USD in assets under management, has adopted a net zero emissions 2050 target within its fiduciary approach to clients as of 2021 [267]. ...
... The multiple competing dynamics outlined point to opportunities for the evolution of business models, as we discussed in Section 8.2, and present interesting complex systems issues that are well suited for academic exploration. The evolution of business models is further related to the coupling of the oil refining industry to the financial sector, where ESG-driven investment is strongly pressuring refiners that operate in public markets [266,[427][428][429]. ...
The oil refining industry, which was established in the mid-19th century, has become a foundation of modern society. While the refining of crude oil to produce transportation fuels, petrochemical feedstocks and a variety of other products has brought manifold benefits, it has also led to the global proliferation of greenhouse gas emissions as well as local air pollution from the combustion of fossil fuels. The industry is therefore confronted with a growing need to decarbonize its operations, as well as to support decarbonization of the end use sectors that it directly enables. This paper provides a systematic and critical literature review to uncover the means by which the oil refining industry can decarbonize and evolve as part of an increasingly carbon constrained future. A sociotechnical perspective is used to understand the full range of industrial and economic activities where a decarbonized oil refining industry is expected to remain important and to provide the framework to assess key technical, economic, social and political factors that will likely impact the evolution of the oil refining industry. We highlight key opportunities for this industry to decarbonize while also exposing gaps in the existing literature concerning its decarbonization. The insights provided are expected to support policy makers, researchers and practitioners with the tools needed advance a low-carbon transition of the oil refining industry.
... Board members and trustees that oversee endowments often raise concerns about the impact of divestment on financial performance. However, a growing body of research shows that investment portfolios which exclude fossil fuel companies perform similarly to the overall market [26][27][28], and excluding fossil fuel companies from an investment portfolio may not significantly impact risk or return when compared to an unrestricted portfolio [29]. While there still is some debate in the academic community as to the financial impact of divestment, it is clear that investors are increasingly considering climate change as an important risk factor when making investment decisions and protecting the long-term value of assets [30]. ...
As the urgency of climate change grows, higher education institutions are increasingly accounting for, and reporting, their annual greenhouse gas (GHG) emissions. An often-overlooked source of GHG emissions are those associated with loans and investments. The purpose of this work is to quantify financed emissions from investment holdings in a public research university endowment, using Northern Arizona University (NAU) as a case study. The methodology for calculating financed emissions is drawn from the Partnership for Carbon Accounting Financials (PCAF), which describes how to attribute GHG emissions from investee companies to the investor on an annual basis. Financed emissions from NAU’s endowment are estimated to be a substantial component of NAU’s GHG inventory, highlighting the significance of this emissions category for public research universities with endowments. The results are presented for individual investee companies and discussed as an indicator of climate-related financial risk. Further, the results show that the divestment of fossil fuel companies from NAU’s endowment would lead to a 22% reduction in financed emissions.
... One exception is divestment announcements by sovereign wealth funds have an impact on share returns 15 . Other studies have taken various approaches, including establishing theoretical foundations for understanding these movements 6,16,17 , examining the impact of divestment on the stock market valuations of fossil energy companies 12,[18][19][20] , and assessing the implications for portfolio performance among investors adopting divestment strategies 21 . Divestment is most common in Europe among larger and publicly owned pension funds 22 . ...
Fossil divestment, or the sale of fossil fuel financial assets, aims to redirect capital towards sustainable energy sources. Historical precedents, such as divestment during South African Apartheid, successfully pressured governments to drive change. But is there any substantial evidence of fossil fuel divestment today? Here we show that large-scale divestment remains limited, with only certain religious organizations, universities, and public institutions actively reducing fossil fuel holdings. Using a new database of 30 million investor positions across 312 major fossil fuel companies, we reveal distinct short- and long-term divestment drivers: while short-term divestment is primarily triggered by declining oil prices, long-term divestment is influenced by anticipated environmental and climate policy risks. Yet, only a minority of investors consider these long-term risks in their fossil fuel investment strategies, indicating a hesitant shift towards divestment as a response to climate concerns.
... In fact, one study found that a fossil-free portfolio (S&P, excluding fossil fuel companies) outperformed the S&P 500 Index and a fossil-fuel orientated portfolio within the S&P 500 over an eight-year period between 2010 and 2018. 65 Finally, the Cambridge divestment report summarised all of the above studies and all of the other peer-reviewed analyses available, concluding that although it is possible to time fossil fuel divestment well or poorly because fossil fuels have outperformed or underperformed the market at different points, judging from a review of studies covering 118 years of data there was little overall difference between fossil-free and conventional portfolios. ...
This anthology brings together a diversity of key texts in the emerging field of Existential Risk Studies. It serves to complement the previous volume The Era of Global Risk: An Introduction to Existential Risk Studies by providing open access to original research and insights in this rapidly evolving field. At its heart, this book highlights the ongoing development of new academic paradigms and theories of change that have emerged from a community of researchers in and around the Centre for the Study of Existential Risk. The chapters in this book challenge received notions of human extinction and civilization collapse and seek to chart new paths towards existential security and hope.
The volume curates a series of research articles, including previously published and unpublished work, exploring the nature and ethics of catastrophic global risk, the tools and methodologies being developed to study it, the diverse drivers that are currently pushing it to unprecedented levels of danger, and the pathways and opportunities for reducing this. In each case, they go beyond simplistic and reductionist accounts of risk to understand how a diverse range of factors interact to shape both catastrophic threats and our vulnerability and exposure to them and reflect on different stakeholder communities, policy mechanisms, and theories of change that can help to mitigate and manage this risk. Bringing together experts from across diverse disciplines, the anthology provides an accessible survey of the current state of the art in this emerging field.
The interdisciplinary and trans-disciplinary nature of the cutting-edge research presented here makes this volume a key resource for researchers and academics. However, the editors have also prepared introductions and research highlights that will make it accessible to an interested general audience as well. Whatever their level of experience, the volume aims to challenge readers to take on board the extent of the multiple dangers currently faced by humanity, and to think critically and proactively about reducing global risk.
... According to Laksmi and Hasri (2022), "[b]ased on the legitimacy theory, by disclosing CSR activities, companies hope to gain legitimacy from the community as an effort to improve the company's financial performance", with some studies suggesting this can be a successful strategy (p. 104; Olateju et al., 2021;Halcoussis and Lowenberg, 2019). CSR is thus about building trust with the community, for companies and the financial reporting sector as a whole (McKernan and MacLullich, 2004). ...
Purpose
The purpose of this paper is to consider the ethical and environmental implications of allowing space resource extraction to disrupt existing fuel economies, including how companies can be held accountable for ensuring the responsible use of their space assets. It will also briefly consider how such assets should be taxed, and the cost/benefit analyses required to justify the considerable expense of supporting this emerging space industry.
Design/methodology/approach
This paper adopts theoretical bioethics methodologies to explore issues of normative ethics and the formulation of moral rules to govern individual, collective and institutional behaviour. Specifically, it considers social justice and social contract theory, consequentialist and deontological accounts of ethical evaluation. It also draws on sociological and organisational literature to discuss Dowling and Pfeffer’s (1975) and Suchman’s (1995) theories of pragmatic, cognitive and moral legitimacy as they may be applied to off-world mining regulations and the handling of space assets.
Findings
The findings of this conceptual paper indicate there is both a growing appetite for tighter resource extraction regulations to address climate change and wealth concentration globally, and an opportunity to establish and legitimise new ethical norms for commercial activity in space that can avoid some of the challenges currently facing fossil fuel divestment movements on Earth.
Originality/value
By adopting methodologies from theoretical bioethics, sociology and business studies, including applying a legitimacy lens to the issue of off-world mining, this paper synthesises existing knowledges from these fields and brings them to the new context of the future space resource economy.
... While there has been an abundance of research on the effects of oil price shocks on stock markets (Roudari et al., 2023;Escribano et al., 2023;Si Mohammed et al., 2023;Alamgir & Amin, 2021;Jiang et al., 2021;B. & Paul, 2021;Halcoussis & Lowenberg, 2019;Wen et al., 2014), it is interesting to note that many of these studies have not fully explored the potential interdependence between the fossil fuel markets and stock markets of nations that significantly contribute to global emissions. Moreover, the fluctuations in stock markets can indirectly influence energy markets through the contagion effect, as changes in investor sentiment and behaviours triggered by stock market fluctuations play a role. ...
... Here, it shows they gradually diversify their resources and increase the share of renewable energy resources. Academic institutions may have substantial investments from endowments and are often targeted by climate activists first [7,15,[54][55][56][57]. They are a specific niche of institutional investing and we did not find studies investigating whether changes in the portfolio allocation of academic funds, especially divesting from fossil fuel companies, have triggered others to do so as well. ...
... The divestment of land and shares owned announcement may affect the prizes. According to research by, that divestment announcements related to campaigns, pledges, and endorsements all have a significant effect over the short-term event window (Dordi & Weber, 2019;Halcoussis & Lowenberg, 2019). Finally, the results control for the general underperformance of the industry over the estimation window, attesting that the price change is caused by divestment announcements. ...
This study aims to describe exit strategies in the property development services industry and highlight the importance of implementing contingency leadership in XYZ companies. The focus is on a situation where the decline in apartment sales occurs due to the saturation of the property market and the impact of the Covid-19 pandemic. The main objective of the study is to provide an in-depth understanding of exit strategies in the property development industry and to evaluate the role of contingency leadership in dealing with such situations. This research is a descriptive research with a qualitative approach, which aims to describe and analyze the situation in the property development service industry. The subject of the study is Company XYZ, which represents companies in the property development industry. Data was collected through semi-structured interviews with related parties at Company XYZ. Data is analyzed with steps that include description, data reduction, data presentation, and verification. The results showed that the decline in apartment sales has occurred since 2018 due to the saturation of the property market and the Covid-19 pandemic, as well as the importance of implementing contingency leadership in dealing with the situation. This research provides a new understanding of exit strategies in the property development industry and the mechanisms for selecting them. It can be a basic policy guide for companies in the face of similar challenges. This research has a particular focus on Company XYZ.
... In the last few years, there has been a growing production of wood for energy purposes (Fig. 2), in 2021, the use of biomass for industry and residence was 43.6% and 10.8%, respectively [17,19], unlike the last century, which had been marked Evolution of world production of wood for energy. Source Adapted from IEA [28] by a worldwide reduction in the supply and consumption of biomass, and in particular wood for energy, since the growing global consumption of energy had been substantially met by the use of mineral coal, oil, natural gas, nuclear sources, and hydroelectricity [24,25]. ...
For years, wood was the main source of energy for mankind, and nowadays there has been a greater appreciation for this energy matrix, due to environmental and strategic issues. This research paper presents an analysis of the current situation of the feasibility of using wood for the generation of electric energy in Brazil, a developing country. Technical and economic elements are addressed, based on the use of wood for this purpose. Thus, aspects of wood are highlighted, seeking to elucidate its importance and advantages among renewable sources, as well as the costs involved in energy generation, compared to other fuels. Similarly, it includes surveys involved in the use of biomass for the generation of thermoelectricity, culminating in a mention about the perspectives of the forestry sector on the granting of new licenses for the installation of new thermoelectric plants in the country. There was a growing interest in the inclusion of forest biomass in the generation of thermoelectricity in Brazil, considering the incentives of environmental and economic nature, which can be considered the main drivers for the use of biomass for electricity cogeneration. Regarding the advancement of the forestry sector, the perspective is that there will be an intensification of the use of forest residues already available, as well as the establishment of forests specifically destined for the generation of thermoelectricity. Future scenarios will depend mainly on governmental decisions related to the tariff policies associated with the generation and distribution of electric energy in the country.KeywordsBiomassForest biomassElectricityThermal power plantFuelThermochemical conversion
... Evidence shows that climate uncertainties may dampen the global non-renewable energy capacity given the high level of green investment (see Syed et al., 2022;Hung, 2022). Observable evidence shows that options preferred in the financial markets over time have shifted to sustainable green investment and massive fossil fuel divestment (Halcoussis & Lowenberg, 2019). However, the events around the Russia-Ukraine war show that uncertainty can dampen investments in green energy (Deng et al., 2022). ...
The study uses a novel approach to test for the persistence of green asset returns, fossil fuel returns, and climate policy uncertainty. We find evidence of persistence in the series when asymmetries are considered in our test. The fossil fuel returns and climate policy uncertainty have no effect on the persistence of sustainable green asset returns. Policies around climate policy uncertainty and green asset returns should be long term.
... These preference shifts can affect the prices of financial assets (Fama and French 2007). Anecdotal evidence suggests that preference shifts have caused rapid growth in sustainable (green) investing (GSIA 2018) and a massive fossil fuel (brown) disinvestment campaign (Halcoussis and Lowenberg 2019). These investment trends can be triggered or accentuated, for instance, by international conferences on climate change (e.g., the 2012 United Nations (UN) Climate Change Conference), international agreements (e.g., the Paris agreements), or new regulatory proposals (e.g., the Climate Action Plan). 1 Pástor et al. (2021) propose a theoretical framework to model the impact of changes in sustainability preferences on asset prices. ...
We empirically test the prediction of Pástor et al. (2021) that green firms outperform brown firms when concerns about climate change increase unexpectedly, using data for S&P 500 companies from January 2010 to June 2018. To capture unexpected increases in climate change concerns, we construct a daily Media Climate Change Concerns index using news about climate change published by major U.S. newspapers and newswires. We find that on days with an unexpected increase in climate change concerns, the green firms’ stock prices tend to increase, whereas brown firms’ prices decrease. Furthermore, using topic modeling, we conclude that this effect holds for concerns about both transition and physical climate change risk. Finally, we decompose returns into cash flow and discount rate news components and find that an unexpected increase in climate change concerns is associated with an increase (decrease) in the discount rate of brown (green) firms.
This paper was accepted by George Serafeim, business and climate change.
Funding: This work was supported by the National Bank of Belgium, Research Foundation Flanders (FWO), Institut de Valorisation des Données (IVADO), the Natural Sciences and Engineering Research Council of Canada [Grant RGPIN-2022-03767], and Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschung [Grants 179281, 191730].
Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4636 .
... Although several studies (see, e.g., Bergman, 2018;Dordi & Weber, 2019;Halcoussis & Lowenberg, 2019;Hansen & Pollin, 2020;Henriques & Sadorsky, 2018;Hunt & Weber, 2019;Hunt et al., 2017;Plantinga & Scholtens, 2021;Trinks et al., 2018) have examined the financial impact of fossil fuel divestment and their announcements, as far as our research has identified, only a few of them focus on the effects of divestment on the stock prices of fossil fuel companies. Consequently, this study seeks to bridge this knowledge gap and to explore the direct short-term effects of divestment announcements on stocks of fossil fuel companies. ...
Fossil fuel divestment movements have gained momentum since 2011, aimed at ending fossil fuel use and a move toward a cleaner, affordable, and sustainable energy system, for business and society. The present study investigates the direct impact of fossil fuel divestment announcements on stock prices of firms listed on the United States' stock exchanges. Using an event study and guided by the United Nation's sustainable development goals (SDGs), we test the effects of 116 divestments announcements between 2014 and 2019 on 51 publicly traded fossil fuel companies. Our results suggest that there is a negative effect of these announcements on fossil fuel firm stock prices. Also, we find that the type of fossil fuel firm (coal or oil and gas), the type of divestment (partial, coal only, or full), the timing of the announcement, and the size of the divesting investor have some explanatory power in relation to the (cumulative) abnormal returns following the divestment announcements. While the negative impact on stock prices is not surprising, the reaction from the divested firms after such large divestitures is not consistent with what may be expected, given past reactions to divestitures seeking to achieve different social goals. Given the SDGs, it seems clear why investors are divesting themselves from fossil fuel firms, but why has the reaction to the 116 divestments led to very little change in the way these publicly traded fossil fuel firms do business given their direct and growing impacts on society? We conclude the study with some suggestions for future research.
... Sequel to the numerous challenges attributed to the fossil fuels that include increasing global consumption, price instability, serious environmental degradation and overall reserves declination [1][2][3][4][5][6], the exploration of abundant biomass resources for energy consumption is necessary [7][8][9][10][11]. Unlike fossil fuels and their energy derivatives, biomass represents a collection of plant and/or animal resources that could be valorized for energy applications or other industrial uses. ...
Sequel to the future challenges identified in the energy indicators, the exploration of algae-biomass resources increasingly becoming an issue of interest. Algae-derived oils are accordingly considered as alternative fuels with great future prospects. However, their direct utilization is scientifically difficult due to associated complex compositions. So far, hydrodeoxygenation (HDO) of the oils is increasingly viewed as the reliable upgrading process for deriving high quality fuels. The paper therefore explored and critically examined substantial literature on the updates related to catalyst design and testing for HDO, the influence of oil production techniques on its susceptibility to HDO, effects of parameters such as catalyst sulfidation, modification to phosphides, nature of support systems and preparation versus reaction conditions. In addition to highlights on reaction mechanisms, the paper also discussed the effect of hydrothermal treatment on HDO catalyst stability and provided insights into areas for further investigations.
... Research to date has tended to focus on reviewing the Divestment movement in general and its aims and challenges (Apfel, 2015;Ayling and Gunningham, 2015;Gunningham, 2017;Leal Filho et al., 2018;Braungardt, van den Bergh and Dunlop, 2019;Hestres and Hopke, 2019). Research also exists in relation to the social, political and financial impacts of Divestment (Bergman, 2018;Dordi and Weber, 2019;Halcoussis and Lowenberg, 2019;Macpherson, 2019). Additionally, Ritchie and Dowlatabadi (2015) and Hunt and Weber (2019) Corporations' share value and subsequently CO2 emissions. ...
The threat of global warming beyond 2˚C has led to climate change movements within financial services, including calling for divestments from fossil fuels and reinvestment in renewable energy. Yet, the movements have been criticized for their inability to affect material change to fossil fuel production and CO2 emissions. This study performed a systematic literature review to determine the potential impacts of financial sector divestment from fossil fuels and reallocation of investments into renewable energy. The study finds conflicting results on the effects but likely some, even if marginal, reductions in CO2 emissions as a result of divestment. These reductions are enhanced by renewable energy reinvestment. The study concludes that despite the rapid growth of divestment pledges among institutions, further impacts could be possible if insurance companies and banks adopted more stringent divestment policies. Nevertheless, the study finds that financial institutions have the potential to contribute to climate change mitigation and the Paris Agreement’s 2˚C target. Further, divestment, if incorporating renewable energy reinvestment, has the potential to go beyond a normative movement and offer a path to a sustainable energy transition.
... Too often these prognostications rely on the undoubtedly impressive growth trajectory of installed solar and wind capacity and the increasing cost-competitiveness of these energy sources as evidence of immanent success. Likewise, they risk overestimating the efficacy of increasing pressures exerted by policy makers, environmental activists and investors concerned about 'stranded assets' to force the fossil fuel industries to become active participants in, rather than obstacles to, this transition to a low-carbon global economy based on renewables [62]. ...
Energy security has become a central focus in social scientific studies of energy resources, and most research on the securitization of energy emphasizes the pivotal role of fossil fuels in shaping geopolitics in the 20 th century. We extend the temporal scope of energy security by conducting a case study of the early 19 th century whale oil industry to demonstrate the ways in which a focus on the human security consequences of energy competition can affect Anglo-American commercial balance of power relations. This case study also demonstrates the significance of the physicality of energy sources in understanding their effect on international affairs. Crucially, whereas the stationary nature, or locational fixity, of natural resources constitutes a defining characteristic of their treatment in the resource curse, resource nationalism and resource conflict literatures, the geographically unbounded nature of whale oil introduces a qualitatively different dynamic. The insights provided by the whale oil industry are instructive not only for understanding the dynamics of securitization of energy but also for considering how the embryonic energy transition towards renewables will reshape geopolitics in the 21 st century.
... 156 Indicator By encouraging investors to reduce their financial interests in the fossil fuel industry, divestment efforts both remove the social licence to operate and guard against the risk of losses due to stranded assets in a world in which demand for fossil fuels rapidly decreases. 194,195 This indicator tracks the total global value of funds divested from fossil fuels and the value of divested funds coming from health institutions by use of data provided by 350.org, with annual data and full methodology described in the appendix (pp [126][127]. 196 From 2008 Placing a price on greenhouse gas emissions provides an incentive to drive the transition towards a low-carbon economy. ...
The Lancet Countdown is an international collaboration established to provide an independent, global monitoring system dedicated to tracking the emerging health profile of the changing climate.
The 2020 report presents 43 indicators across five sections: climate change impacts, exposures, and vulnerabilities; adaptation, planning, and resilience for health; mitigation actions and health co-benefits; economics and finance; and public and political engagement. This report represents the findings and consensus of the 35 leading academic institutions and UN agencies that make up The Lancet Countdown, and draws on the expertise of climate scientists, geographers, engineers, experts in energy, food, and transport, economists, social, and political scientists, data scientists, public health professionals, and doctors.
... 156 Indicator By encouraging investors to reduce their financial interests in the fossil fuel industry, divestment efforts both remove the social licence to operate and guard against the risk of losses due to stranded assets in a world in which demand for fossil fuels rapidly decreases. 194,195 This indicator tracks the total global value of funds divested from fossil fuels and the value of divested funds coming from health institutions by use of data provided by 350.org, with annual data and full methodology described in the appendix (pp [126][127]. 196 From 2008 Placing a price on greenhouse gas emissions provides an incentive to drive the transition towards a low-carbon economy. ...
The Lancet Countdown is an international collaboration established to provide an independent, global monitoring system dedicated to tracking the emerging health profile of the changing climate.
The 2020 report presents 43 indicators across five sections: climate change impacts, exposures, and vulnerabilities; adaptation, planning, and resilience for health; mitigation actions and health co-benefits; economics and finance; and public and political engagement.
This report represents the findings and consensus of the 35 leading academic institutions and UN agencies that make up The Lancet Countdown, and draws on the expertise of climate scientists, geographers, engineers, experts in energy, food, and transport, economists, social, and political scientists, data scientists, public health professionals, and doctors.
... They are attractive to Socially Responsible Investing (SRI) and to financiers committed in gaining exposure to energy efficiency market. For SRI Halcoussis and Lowenberg (2019) [73] state "Portfolios based on environmental, social and governance criteria typically allocate their investments based not exclusively on traditional metrics such as market value, revenue or dividends, but also on how a company performs in terms of environmental, social and governance (ESG) policies". EE Funds assure the critical financial mass, absence of which creates obstacles to energy efficiency investments, particularly in residential and commercial buildings due to complexity, spread, and small size of the projects (see Table 6). ...
The purpose of the paper is to study the financing models in order to drive the large amount of financial resources, already allocated for energy efficiency, to improve the quality of cities. These resources are being deployed worldwide by both public and private financial institutions. Energy efficiency is usually managed at the scale of the buildings, i.e., consumption reduction (heating, lighting, etc.). The study methodology is to review energy-efficiency finance (EEF) models, and assess them using multiple case studies. At the same time, the ownership of cities’ spaces is studied across public-private space management, as an effective methodology to bridge the gap between public and investor finance. The comparative analysis of the case studies suggests a paradigm shift in the definition of energy efficiency, not just in terms of the buildings, but instead also the local urban environment with its feedbacks on the quality of urban living. The practical implications are innovative EEF models, such as those being reviewed, which may be: (1) analytical, to assess the environment at the scale of blocks or neighbourhoods; (2) financial, to fund the specific scale; (3) relating to policy, to support and encourage. In recent years, support for urban regeneration is becoming particularly relevant, given the budget constraints of most public administrations and the conjunctural shortening of private partnerships.
... Anecdotal evidence suggest that preference shifts have caused rapid growth in sustainable ("green") investing (GSIA 2018) and a massive fossil fuel ("brown") disinvestment campaign (Halcoussis and Lowenberg 2019). These investment trends can be triggered or accentuated, for instance, by international conferences on climate change (e.g. the 2012 UN Climate Change Conference), international agreements (e.g. the Paris agreements) or new regulatory proposals (e.g. ...
We empirically test the prediction of Pastor, Stambaugh, and Taylor (2021) that green firms outperform brown firms when concerns about climate change increase unexpectedly, using data for S&P 500 companies from January 2010 to June 2018. To capture unexpected increases in climate change concerns, we construct a daily Media Climate Change Concerns index using news about climate change published by major U.S. newspapers and newswires. We find that on days with an unexpected increase in climate change concerns, the green firms’ stock prices tend to increase while brown firms’ prices decrease. Further, using topic modeling, we conclude that this effect holds for concerns about both transition and physical climate change risk. Finally, we decompose returns into cash flow and discount rate news components and find that an unexpected increase in climate change concerns is associated with an increase (decrease) in the discount rate of brown (green) firms.
... More recently, in their investigation of investor portfolio divestment from fossil fuels, the authors of [2] find that clean-energy investments offer better returns, whereas [25], in comparing the financial performance of investment portfolios with and without fossil fuel stocks, report that fossil fuel divestment does not seem to impair portfolio performance, given that fossil fuel stocks do not outperform other stocks on a risk-adjusted basis and that fossil fuel stocks provide relatively limited diversification benefits. Likewise, the authors of [26] contend that socially responsible investing has not been costly in terms of forgone market returns, as the return performance of a fossil-fuel-free portfolio surpasses the S&P 500 returns index due to poor fossil fuel sector performance. ...
In the transition to a low-carbon economy, climate-resilient investors may be inclined to buy renewable-energy or other low-carbon assets. As the diversification benefits of investment positions in those assets depend on interdependence between their market prices, we explore that interdependence in the European and USA stock markets. We model the dependence structure using bivariate copula functions and evaluate price spillovers between those markets using a conditional quantile dependence approach that accounts for the reciprocal effects of price movements in those markets under normal and extreme market scenarios. Our empirical evidence for the period 2010–2019 indicates that European renewable-energy and low-carbon stocks co-move; upward and downward movements in low-carbon asset prices have sizeable effects on renewable-energy asset prices, and vice versa, although effects are smaller. In contrast, for the USA we find evidence of non-interdependence, with no significant upward or downward price spillover effects between renewable-energy and low-carbon stocks. Our empirical findings provide useful insights for the design of carbon-resilient portfolios and risk management strategies, and also for implementation of public funding policies to support the transition to a low-carbon economy.
Institutional investors, who control as much as $154 trillion globally, may play an important role in shaping the energy transition as major stakeholders in fossil fuel producing, distributing and consuming companies. Research on investors and fossil fuels has focused largely on the divestment movement or on shareholder engagement. However, given their limited success to date, additional strategies to influence the fossil fuel sector are merited. This review paper expands the scope of attention to investors, asking: what strategies for influencing the fossil fuel industry are available to institutional investors and what are the implications of these for achieving an inclusive fossil fuel phase-out? Through a systematic review of 153 papers, we identify seven strategies for influencing the fossil fuel phase-out: divestment, shareholder engagement, hiring practices, engaging the financial sector, engaging indirect financial actors, litigation, and green investment. These strategies represent ways for investors to increase the impact of their engagements, as well as areas deserving greater attention from academics, policymakers, and activists. Across these strategies, we note trade-offs in favour of financial returns at the expense of social, ecological, and equity outcomes. We argue that future research should focus on: (a) the role of under-studied actors in aligning finance with climate goals; (b) the implications of investor action for an inclusive energy transition; and (c) policy solutions capable of overcoming investors’ short-term profit motives to instead incentivise long-term investor engagement with climate issues.
The Covid pandemic has amplified the hardships people are experiencing from human-induced climate change and its impact on weather extremes. Those in the Majority World are most effected by such global crises, and the pandemic has exposed the vulnerabilities of these populations while highlighting the differences between them and those fortunate to live in the Minority World. This book presents an overview of the impact of the climate emergency punctuated by a pandemic, discussing the expanding inequalities and deteriorating spaces for democratic public engagement. Pandemic responses demonstrate how future technological, engineering, political, social, and behavioural strategies could be constructed in response to other crises. Using a critical analysis of these responses, this book proposes sociotechnical alternatives and just approaches to adapt to cascading crises in the Majority World. It will be valuable for social science students and researchers, policymakers, and anyone interested in inequality and vulnerability in developing countries.
Purpose
This study aims to provide a precise understanding of how corporate sustainability information is used in socially responsible investing (SRI). The study is motivated by the lack of a recognised body of knowledge on this issue. This study, therefore, collates and reviews relevant studies (67 studies) to provide guidance to investors interested in SRI and identify a research agenda for academics desiring to contribute to this area.
Design/methodology/approach
This study conducts a systemic literature review employing recognised key words and searching the Web of Science. HistCite is utilised to ensure important cited studies are not missed from the collection. The review was conducted from two perspectives: (1) sources of sustainability information and (2) how the information is used in SRI.
Findings
The review identifies five major sources of sustainability information, including corporate reports, ESG ratings, industry affiliation, news and private communication with firms. These sources of information play different roles in the cross section of SRI strategies (i.e. negative and positive screening, active ownership and integration). This study provides guidance on how to use this information in SRI and provides recommendations for future research on how analysts interact with the information, how different informational characteristics impact implementation, ways to improve data quality, improvements to analysis methods and where data use needs to be extended into new strategies.
Originality/value
This review contributes to the SRI literature by inventorying studies of an important, yet omitted aspect, namely, sustainability information. This work also enriches the literature on corporate sustainability information by investigating how this information can be used for a specific purpose, namely, SRI. Given the increasing interest in SRI, this review will provide much-needed guidance for a range of practitioners, including investors and regulators.
Environmental degradation is a global concern that warrants cooperative efforts from multiple stakeholders. In this context, responsible finance is critical to help achieve the sustainability targets and foster transition to net-zero emissions. However, to encourage green finance, investors must receive some incentives, and this paper explores if there are any benefits for the market participants. We have employed a comprehensive sample of firms from the BRICS for ten years and sorted them into black and green portfolios using multiple constructs. The comparative assessment of these portfolios shows that green stocks dominate their black counterparts, and the dominance was robust across adjusted Sharpe and Sortino ratios and Jensen's alpha. Our evidence also demonstrates that rebalancing of the portfolios due to changing ecological characteristics results in successful market timing for the green portfolios. Finally, the results suggest that the divestment of fossil fuel stocks, firms with lower environmental scores, high carbon intensity, and low sustainable revenues provide investment benefits. These findings are very encouraging for the evolution of green finance in emerging markets and have important implications for market participants.
This paper investigates the environmental and financial performance of investments in energy firms. For this purpose, we form portfolios of green energy European stocks compared to their non-green counterparts from January 2008 to November 2020 and assess their environmental and financial performance. Within firms with environmental ratings, those that are green perform better in environmental terms than their non-green counterparts, although the difference has narrowed in recent years. Regarding financial performance, our results show that, in general, the green energy portfolio outperforms the market. Furthermore, within the energy sector, the green energy portfolio performs better than its non-green counterpart. Moreover, we find that the outperformance of the green portfolio is mainly due to a performance improvement in most recent years. Overall, our results show that over this period investments in green energy firms perform at least as well as their non-green energy counterparts.
This paper examines the effects of negative screening on the financial performance of sovereign wealth funds (SWFs)¹. The main responsible SWFs are requested to divest from fossil fuel firms by their respective governments and citizens. Yet, such a strategy may reduce the financial performance of these funds. This study proposes to determine the extent to which excluding fossil fuel firms from SWF portfolios in order to comply with ethical standards reduces their financial performance. By using asset pricing models, namely the capital asset pricing model and the Carhart four-factor model, we find that excluding fossil fuel firms does not harm the financial performance of SWFs. Besides, we document similar results regarding the performance of SWF fossil fuel portfolios, suggesting that fossil fuel divestment will not impact SWF performance. We conclude that socially responsible investment, by means of negative screening, does not reduce SWF performance.
Fossil fuel divestments are increasingly becoming an important medium to foster smooth energy transitions, particularly to sources that can be considered as pro- environment. Ultimately, the financial benefits emerging from such divestitures can incentivize investors. Therefore, following the same context, this paper assesses the comparative performance of 4712 fossil, and non-fossil fuel investment funds of the Eurozone, over a span of eleven years. Our findings show that there is no difference between the risk-adjusted performances of the two categories. This suggests that the fossil fuel investment style does not yield any incremental benefit for the investors. We have also documented that the performance tends to improve when the funds have rebalanced their portfolios, in order to transition from high emission companies to cleaner firms. Moreover, the results in this regard also remained robust for various specifications of performance. Our findings thus imply that investors can opt for low-carbon firms, without compromising on their investment targets and bottom lines.
This paper studies 1) the interplay of factors determining project and capacity choices, namely financial deficit, investment potential, price and technology expectations, and derives 2) the relationship between investment and the elasticity of supply dynamics. Our goal is to understand what incentivizes firms to invest in novel technologies, characterized by low (or negative) returns, forgoing high-profitability projects, and why the price reactions of seemingly similar firms may differ. With insights from the U.S. unconventional industry, we develop an investment model to analyse the trade-off between profit generation and expansion of production potential. The solution reveals how project characteristics, especially growth potential and associated uncertainty, affect the portfolio along with technology and price expectations. Next, we use the investment model results to derive the price elasticity of supply. The results explain a diversity in price responses by the differences in project characteristics, financial capabilities, and expectations. Thus, the negative elasticity or a “backward bending” supply curve phenomenon can be explained by price and technology expectations, whereas inelastic supply by financial deficit, vast investment potential, and high learning ability. The comprehensiveness of our approach accommodates the diversity of insights about supply and investment dynamics and we believe, is essential for projecting the energy transition.
This paper maps the research on environment-related stranded assets. It finds that the stranded assets field emerged due to the uptake of carbon budget concept by business and policy research and growing concerns over the knock-on effects of massive value destruction within the fossil fuel industry. The field then evolved into six research streams: unburnable carbon; the scale of stranded assets; stranded assets and financial markets; recognition of stranded assets; divestment; stranded assets and carbon lock-in effect in energy infrastructure. Key findings are as follows. First, the research into stranded assets is relatively narrow in scope; a sectoral and geographical imbalance is evident in the literature. Second, stranded assets are mostly discussed in grey literature with little connection to work in other research domains. Third, the existing literature has a strong focus on highlighting the magnitude of the stranded assets problem; however, its implications for climate-sensitive sectors have received little consideration. Fourth, the stranded assets research has mostly focused on calculating the cumulative amount of assets that may become stranded in the long term. Fifth, a disconnect between value destruction and value creation aspects of the transition to a low-carbon economy may be present. Sixth, there seems to be a dearth of empirical studies to answer many questions about the market implications of stranded assets, particularly in the energy sector. Therefore, more advanced studies are needed to develop a deeper understanding of macro-and microeconomic impacts of stranded assets which is a promising avenue for further research.
Energy systems are one of the most important infrastructures of the modern society. To realize a sustainable, reliable and affordable energy supply, a new energy revolution is now ongoing globally. In this energy revolution, energy systems integration is considered to be one of the biggest challenges and also opportunities. The main reason for this challenge is the difference between energy sources in terms of the types, environmental conditions and the changing factors of renewable energy production. In this paper, a dynamic modeling and control of PV/Wind/Wave energy hybrid system have been presented. The wave energy, photovoltaic and wind energy conversion systems have been integrated into the main DC bus-bar in order to increase the renewable energy system effectiveness. The wave energy and PV system have been equipped with DC-DC converter and the wind energy conversion system has been equipped with AC-DC converter. Then the whole hybrid system is connected to the buck boost converter and microcontroller system for obtaining constant DC bus-bar voltage. Finally, the output voltage of the hybrid system is connected to the required load or batteries. Experimental test-bed is established for these three different types of renewable energies to study how to integrate them and unify their energy production. Wave energy has been investigated by including a clear challenge to the variation of the output of this energy due to the changes in the strength, direction and height of the waves. The challenge has been raised about how to transfer this energy to the electrical energy. Wind and solar energy are also being studied considering different environmental conditions such as changes of solar irradiation and wind speed. So, the integration of the wind and solar energy with wave energy represents a huge challenge. The analysis and simulation modeling of the hybrid energy system are implemented using MATLAB/Simulink environment. The concept of Buck-boost circuit is presented and investigated in the design of the integrated circuit. The effectiveness of the simulated model is found to be practical, and the model is proven to be used in the integration of the three proposed energies.
A stock divestment campaign is a common strategy used by social activists to pressure corporations to abandon undesirable practices. However, evidence on the effectiveness of the strategy remains mixed. In this paper, we examine the effectiveness of an international stock boycott by studying a large sample of institutional investor transactions in four emerging market stocks targeted by the Sudan divestment campaign from 2001 to 2012. We find evidence of a negative relationship between the intensity of the campaign and the ownership breadth of the stocks, suggesting the effectiveness of the campaign in encouraging investors to divest from targeted companies. Additional analysis indicates that investors in countries that are sympathetic towards CSR activities are more responsive to the divestment campaign. Further, we find evidence consistent with higher campaign intensity being associated with more depressed stock prices. Finally, when performing qualitative content analyses of the annual reports and CSR reports, we find evidence about the effects of the campaign on the targeted companies’ corporate policies and activities in Sudan. In sum, our results support the effectiveness of the stock boycott.
This study analyzes the market-timing skills of Socially Responsible Investment (SRI) fund managers based in North America (US & Canada) and Europe. We use a broad sample of 248 North American and 500 European SRI funds during the January 2001-December 2011 period. Our result indicates that market-timing skills exist in both regions and SRI funds are attractive investment instruments. Nonetheless, North American SRI funds are more attractive than the European SRI funds because fund managers from North America possess superior stock selection abilities and market-timing skills.
Corporate Social Responsibility (CSR) can be viewed from two different perspectives: that of the business; and that of the individual investor (Socially Responsible Investing, SRI). In this study regression analysis as well as an event study was used to examine the link between CSR and firm performance. The results suggested that in the short-term there were no significant price effects on the SRI shares. In contrast, the returns of SRI portfolios over the sample period seemed to be superior to those of conventional firms. The regression analysis found that generally the SRI coefficients were insignificant; however using one of the models during the fifteen year sample period, SRI constituents attained a ROE that was 11.18% higher (as well as a ROA that was 1.824% lower) than conventional firms. When the period was restricted to 2004-2009 it was found that social performance was positively - and sometimes significantly - correlated with ROE.
We analyze, and compare, performance and performance persistence of Socially Responsible Investment (SRI) funds in Europe and North America. We use a broad sample of 500 European and 248 North American SRI funds for the period January 2001 - December 2011. We find that SRI funds outperform the market benchmark in Europe and North America over this period and that North American SRI funds perform better than European SRI funds. We find little evidence of performance persistence in either region using a ranked portfolio approach; however, there is more evidence of performance persistence in European SRI funds than in their North American counterparts using a non-parametric ranked portfolio approach.
this article, I try to separate facts from beliefs. I report that the Domini Social Index, an index of socially responsible stocks, did better than the S&P 500 Index and that socially responsible mutual funds did better than conventional mutual funds over the 1990--98 period but the differences between their risk-adjusted returns are not statistically significant. Both groups of mutual funds trailed the S&P 500 Index. ccording to the Social Investment Forum (1999), assets in socially responsible portfolios reached 1.2 trillion in 1997. This amount might increase muchmore if U.S. Social Security funds are invested in the market and if stocks for the Social Security fund are screened for social responsibility. Ip (1999) reported that Social Security plans under discussion call for stock investments of 1.2 trillion over the next 15 years. Some are delighted by the prospect of social screens for Social Security funds, whereas others are alarmed. Jesse Jackson is delighted. "I think we should not invest in gun manufacturing," he said to the U.S. House Ways and Means Committee, "and we shouldn't invest in liquor companies and shouldn't invest in tobacco companies" ("The Rubin-Jackson Raid" 1999). But Milton Friedman (1999) is alarmed by what he considers Social Security socialism. "Margaret Thatcher reversed Britain 's drift to socialism by selling off governmentowned enterprises," he wrote. "President Clinton now proposes that the U.S. government do the opposite: buy private equities, thereby becoming part-owner of U.S. enterprises." I analyzed the performance of the Domini Social Index (DSI), an index of socially responsible companies, and the performance of socially responsible mutual funds in the 1990--98 period and conclud...
Although the academic interest in ethical mutual fund performance has developed steadily, the evidence to date is mainly sample-specific.
To tackle this critique, new research should extend to unexplored countries. Using this as a motivation, we examine the performance
and risk sensitivities of Canadian ethical mutual funds vis-à-vis their conventional peers. In order to overcome the methodological
deficiencies most prior papers suffered from, we use performance measurement approaches in the spirit of Carhart (1997, Journal of Finance 52(1): 57–82) and Ferson and Schadt (1996, Journal of Finance 51(2): 425–461). In doing so, we investigate the aggregated performance and investment style of ethical and conventional mutual funds and allow for time variation in the funds’ systematic risk. Our␣Canadian
evidence supports the conjecture that any␣performance differential between ethical mutual funds and their conventional peers
is statistically insignificant.
Mutual fund attrition can create problems for a researcher because funds that disappear tend to do so due to poor performance. In this article we estimate the size of the bias by tracking all funds that existed at the end of 1976. When a fund merges we calculate the return, taking into account the merger terms. This allows a precise estimate of survivorship bias. In addition, we examine characteristics of both mutual funds that merge and their partner funds. Estimates of survivorship bias over different horizons and using different models to evaluate performance are provided. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
This paper studies the impact of investor sentiment on a portfolio formed of sin stocks-publicly traded companies in the alcohol, tobacco, and gaming industries. Using a variety of sentiments-augmented asset pricing models, this research examines whether investor sentiment is a risk factor for sin stock returns. It also studies if the abnormal returns - found in the literature - for sin stocks persist after controlling for investor sentiment. Furthermore, we utilize a generalized autoregressive conditional heteroscedasticity-in-mean (GARCH) model to study the relationship between investor sentiment and the sin portfolio's conditional volatility. Our findings show that both individual and institutional investor sentiment are priced factors in sin stock returns. Furthermore, after controlling for the role of investor sentiment, the asset-pricing results suggest that the abnormal returns for sin stocks found in previous studies disappear. The results from the GARCH models indicate that investor sentiment has a significant impact on sin stocks' conditional volatility.
Purpose
The purpose of this paper is to evaluate the performance of socially responsible funds by closely examining funds' investment styles.
Design/methodology/approach
The authors apply William Sharpe's method of style analysis to evaluate the performance of 94 US socially responsible mutual funds. By using the fund style as a benchmark, the authors are able to separate the performance attributed to style and selection.
Findings
The authors observe that underperformance of socially responsible funds is more pronounced and common than identified in the previous literature. Proponents of socially responsible investing argue that screening process provides an opportunity to fund managers to identify best companies in terms of future financial performance. The paper finds that active management of mutual funds is an important determinant of their performance in socially responsible investing industry. This paper provides evidence supporting that active management of socially responsible funds add value.
Originality/value
This study will help investors in allocating their portfolios among many of the available SR funds. The result – actively managed SR funds outperform their passive counterparts – will be valuable for those investors who are willing to invest in socially responsible funds but are concerned about the financial performance.
In this article, we examine a broad sample of socially responsible (SR) and conventional mutual funds with respect to financial and ethical parameters. We cannot document profound differences in their financial performance. With regard to ethical performance, we indeed find that an investor who seeks to avoid the least ethical of all available funds can do so by purchasing SR mutual funds. Still, we also demonstrate that SR mutual funds are not holding considerably more ethical assets on average. Moreover, the label ‘SR mutual fund’ does not in any way guarantee the exclusion of clearly unethical firms, which contrasts to the common perception of screening out poor assets.
The SRI funds performances remain inconclusive. Hence, more studies need to be conducted to determine if SRI funds systematically underperform or outperform conventional funds. This paper has employed dynamic mean-variance model using shortage function approach to evaluate the performance of SRI and Environmentally friendly funds. Unlike the traditional methods, this approach estimate fund performance considering both the return and risk at the same time. The empirical results show that SRI funds outperformed conventional funds in EU and U.S. In addition, the results of EU are among the top-performing categories. Environmentally friendly funds do not perform as well as SRI, but perform in manners equal or superior to conventional funds. These results show statistically significant in some cases.
The last two decades have shown us the growing importance of corporate, social and governance programs, as executives, investors and regulators have become increasingly aware of these programs’ potential to mitigate corporate crises and build solid social reputation. Thus, mutual funds that invest according to social, environmental and ethical criteria have increased both in volume and value. This paper investigates the performance of a sample of 80 socially responsible mutual funds from 8 European countries, within the period from 2002 to 2010. Using both the mainstream unconditional model and the most recent conditional models, we address a performance comparison between these funds and unscreened benchmark Indices as well as socially responsible benchmark Indices. We then attest the models results by applying the classical Sharpe Ratio to our Funds sample. We find out that European socially responsible mutual funds present, in general, neutral performance when compared with both benchmark portfolios. Furthermore, performance estimates seem to be slightly higher when funds are analyzed in relation to socially responsible indices and this benchmark has higher explaining power. Conditional models also seem to lead to a slight uplift of performance estimates and of explanatory capacity of the models applied. Sharpe Ratio confirms that there is no significant performance difference between the compared elements. This is consistent with most precedent empirical findings on this issue. Our study reveals that investors can adhibit social screens to their investment choices without pledging their financial returns, contrary to portfolio theory predictions. This paper proves that it is possible to “do well (financially) while doing good (socially)”.
Controlling for investment style, the performance differential between Dutch socially responsible mutual funds and conventional investments over 2001-2003 is not statistically significant. This confirms conclusions drawn elsewhere in the literature. Contrary to most of the findings on socially responsible investing, the socially responsible funds seem to be tilted toward value stocks in this period, which would lend support to the rational asset pricing theory.
More and more investors apply socially responsible screens when building their stock portfolios. This raises the question whether these investors can increase their performance by incorporating such screens into their investment process. To answer this question we implement a simple trading strategy based on socially responsible ratings from the KLD Research & Analytics: Buy stocks with high socially responsible ratings and sell stocks with low socially responsible ratings. We find that this strategy leads to high abnormal returns of up to 8.7% per year. The maximum abnormal returns are reached when investors employ the best-in-class screening approach, use a combination of several socially responsible screens at the same time, and restrict themselves to stocks with extreme socially responsible ratings. The abnormal returns remain significant even after taking into account reasonable transaction costs.
This paper empirically examines the financial performance of a UK unit trust that was initially “conventional” and later adopted
socially responsible investment (SRI) principles (ethical investment principles). Comparison is made with three similar conventional
funds whose investment objectives remained unchanged. Analysis techniques employed in previous studies find similar results:
mean risk-adjusted performance is unchanged by the switch to SRI, with no evidence of over-or under-performance relative to
the benchmark market index by any of the four funds. More interestingly, changes in variability of returns over time are also
modelled using generalised autoregressive conditional heteroscedasticity models, not previously applied to SRI funds so far
as is known. Results show a temporary increase in variability of returns, followed by a return to previous levels after around
4years. Evidence shows the increased variability to be associated with the adoption of SRI rather than with a change in fund
management. Possible explanations for the subsequent reduction in variability include the spread of corporate social responsibility
activities by firms and learning by fund managers. In addition to reporting on a previously unobserved phenomenon, this paper
raises questions for further research.
This study provides new evidence on the performance and investment style of retail ethical funds in Australia. By applying a conditional multi-factor model and after controlling for investment style, time-variation in betas and home bias, we observe no evidence of significant differences in risk-adjusted returns between ethical and conventional funds during 1992–2003. This result however is sensitive to the chosen time period. During 1992–1996 domestic ethical funds under-performed their conventional counterparts significantly, whereas during 1996–2003 ethical funds matched the performance of conventional funds more closely. This suggests that ethical mutual funds underwent a catching up phase, before delivering returns similar to those of conventional mutual funds.
We provide evidence for the effects of social norms on markets by studying "sin" stocks--publicly traded companies involved in producing alcohol, tobacco, and gaming. We hypothesize that there is a societal norm against funding operations that promote vice and that some investors, particularly institutions subject to norms, pay a financial cost in abstaining from these stocks. Consistent with this hypothesis, we find that sin stocks are less held by norm-constrained institutions such as pension plans as compared to mutual or hedge funds that are natural arbitrageurs, and they receive less coverage from analysts than do stocks of otherwise comparable characteristics. Sin stocks also have higher expected returns than otherwise comparable stocks, consistent with them being neglected by norm-constrained investors and facing greater litigation risk heightened by social norms. Evidence from corporate financing decisions and the performance of sin stocks outside the US also suggest that norms affect stock prices and returns.
Pressure for divestment and mandatory disinvestment sanctions directed against South Africa are an instance of domestic interest groups in one country seeking policy change in another. The link from shareholder divestment to disinvestment by firms is tenuous, however (since South Africa-active firms do not seem to suffer as a consequence of divestment pressure), and legislated sanctions are likely to have unpredictable and sometimes perverse effects on the extent of apartheid practices.
This study evaluates risk-adjusted performance of socially responsible mutual funds during the period 1991-2000, using objective statistical measures grounded in modern portfolio theory. A socially responsible mutual fund is defined as one which employs Òsocial screensÓ in stock selection, such as whether a firm manufactures tobacco products, whether it is in the gambling business, whether it heeds environmental safety, its human rights records, etc. The main objective of this study is to provide empirical documentation on the risk-adjusted returns of these mutual funds, for the benefit of investors. To our knowledge, this is one of the first, if not the first, academic study to utilize a relatively new risk-adjusted performance measure, posited by Nobel Laureate Franco Modigliani and Leah Modigliani in 1997 (hereafter referred to as M Squared), to evaluate socially responsible mutual funds. The idea that underlies their methodology is to adjust the investment risk of a mutual fund to the level of risk in an unmanaged benchmark stock-market index and then measure the returns on the risk-matched fund. The M Squared measure not only relates the level of risk to the level of reward, but also enables risk-adjusted returns to be reported on a percentage basis, rather than on an absolute basis, which makes them more easily understood by the average investor. The results of this study can be used in decision making by investors who seek objective criteria to select a socially responsible mutual fund from among a menu of several funds with attractive returns and widely different levels of risk.
Emerging Markets and Financial Resilience: Decoupling Growth from Turbulence
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Performance evalua: revisiting doing good and doing well
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Ethical funds are hard to define
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Timeline: Fossil Fuels Divestment
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