Template-Type: ReDIF-Paper 1.0
Author-Name: Derwall, J.
Author-Name-Last: Derwall
Author-Name-First: Jeroen
Author-Name: Günster, N.K.
Author-Name-Last: Günster
Author-Name-First: Nadja
Author-Name: Bauer, R.
Author-Name-Last: Bauer
Author-Name-First: Rob
Author-Name: Koedijk, C.G.
Author-Name-Last: Koedijk
Author-Name-First: Kees
Title: The Eco-Efficiency Premium Puzzle
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.
Creation-Date: 2004-06-04
File-URL: https://repub.eur.nl/pub/1296/ERS%202004%20043%20F&A.pdf
File-Format: application/pdf
Series: RePEc:ems:eureri
Number: ERS-2004-043-F&A
Classification-JEL: G3, M, M14
Keywords: corporate environmental performance, eco-efficiency, performance measurement, socially responsible investing (SRI), style analysis
Handle: RePEc:ems:eureri:1296