The Eco-Efficiency Premium Puzzle

Guenster Nadja, Bauer Rob, Derwall Jeroen, Koedijk Kees


Abstract
Does socially responsible investing (SRI) lead to inferior or superior portfolio performance? This study focused on the concept of "eco-efficiency," which can be thought of as the economic value a company creates relative to the waste it generates, and found that SRI produced superior performance. Based on Innovest Strategic Value Advisors' corporate eco-efficiency scores, the study constructed and evaluated two equity portfolios that differed in eco-efficiency. The high-ranked portfolio provided substantially higher average returns than its low-ranked counterpart over the 1995-2003 period. This performance differential could not be explained by differences in market sensitivity, investment style, or industry-specific factors. Moreover, the results remained significant for all levels of transaction costs, suggesting that the incremental benefits of SRI can be substantial.



Publication type
Research article (journal)

Peer reviewed
Yes

Publication status
Published

Year
2005

Journal
Financial Analysts Journal

Volume
61

Issue
2

Start page
51

End page
63

Language
English

ISSN
0015-198X

DOI

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