Principle guided investing: The use of negative screens and its implications for green investors

Urs von Arx ()
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Urs von Arx: Institute of Economic Research (WIF), Swiss Federal Institute of Technology Zurich (ETH)

No 05/45, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

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 (search for similar items in EconPapers)
JEL-codes: G10 Q5 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2005-11
New Economics Papers: this item is included in nep-fin
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