The Eco-Efficiency Premium Puzzle

Jeroen Derwall, Nadja Günster, Rob Bauer and Kees Koedijk

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: There exists a widespread consensus among mainstream academics and investors that socially responsible investing (SRI) leads to inferior, rather than superior, portfolio performance. Using Innovest’s well-established corporate ecoefficiency scores, we provide evidence to the contrary. We compose two equity portfolios that differ in eco-efficiency characteristics and find that our highranked portfolio provided substantially higher average returns compared to its low-ranked counterpart over the period 1995-2003. Using a wide range of performance attribution techniques to address common methodological concerns, we show that this performance differential cannot be explained by differences in market sensitivity, investment style, or industry-specific components. We finally investigate whether this eco-efficiency premium puzzle withstands the inclusion of transaction costs scenarios, and evaluate how excess returns can be earned in a practical setting via a best-in-class stock selection strategy. The results remain significant under all levels of transactions costs, thus suggesting that the incremental benefits of SRI can be substantial.

Keywords: corporate environmental performance; eco-efficiency; performance measurement; socially responsible investing (SRI); style analysis (search for similar items in EconPapers)
JEL-codes: G3 M M14 (search for similar items in EconPapers)
Date: 2004-06-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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