Does investing in sustainability leaders affect portfolio performance? Analyzing two mutually exclusive leading and lagging global corporate sustainability portfolios (Dow Jones) finds that (1) leading sustainability firms do not underperform the market portfolio, and (2) their lagging counterparts outperform the market portfolio and the leading portfolio. Notably, we find leading (lagging) corporate social performance (CSP) firms exhibit significantly lower (higher) idiosyncratic risk and that idiosyncratic risk might be priced by the broader global equity market. We develop an idiosyncratic risk factor and find that its inclusion significantly reduces the apparent difference in performance between leading and lagging CSP portfolios. Copyright (c) 2009, The Eastern Finance Association.

Socially Responsible Investment, SRI funds, mutual funds, Australia,

No abstract

Perhaps the most common criticism of socially responsible investment funds is that imposing non-financial screens restricts investment opportunities, reduces diversification efficiencies and thereby adversely impacts performance. In this study we investigate this proposition and test whether the "number" of screens employed has a linear or curvilinear relation with return. Moreover, we analyse the link between screening intensity and risk. Screening intensity has no effect on unadjusted (raw) returns or idiosyncratic risk. However, we find a significant reduction in "&agr;" of 70 basis points per screen using the Carhart performance model. Increased screening results in lower systematic risk - in line with managers choosing lower "&bgr;" stocks to minimize overall risk. Copyright (c) The Authors. Journal compilation (c) 2010 AFAANZ.

Purpose -The purpose of this paper is to examine whether portfolios comprising high-ranked corporate social performance (CSP) firms out/underperform portfolios comprised of low-ranked CSP firms. The authors employed a US sample covering the period 1998-2007. Design/methodology/approach -In the context of the Fama and French model augmented by momentum and industry factors, the authors test the significance of the alpha for a CSP difference portfolio, defined as high-ranked minus low-ranked CSP stocks. Findings -The results are consistent with the "no-linkage" hypothesis, which argues that no significant difference in the risk-adjusted performance is expected between high-and low-ranked CSP-formed portfolios. Furthermore, little evidence was found that high-or low-ranked CSP-formed portfolios, irrespective of the portfolio formation type, systematically differ with regard to performance, size, book-to-market or momentum factors. Originality/value -The authors employ sustainability CSP rankings that focus on environmental, social and governance (ESG) materiality factors, in contrast to many prior studies that solely use KLD ratings or just focus on a subarea of CSP. Moreover, the authors' dataset considerably improves upon previous studies employing similar data in which individual company rankings are not available.