SRI Performance
"Will I sacrifice financial return if I choose an SRI orientation?"
Understandably, this is the most often-asked question from concerned investors. And, the simple answer is NO.
Critics argue that SRI is likely to underperform over the long term because SRI portfolios limit their available investment universe. Of course, this claim can be made against any investment manager using a particular investment style, whether it be capitalization driven (eg, only investing in small-cap companies) or sector specific (eg, focusing heavily on the biotechnology or semiconductor companies). What makes SRI the target of selective criticism is that many traditional Wall Street firms do not understand the social criteria being analyzed and choose to either ignore it, or worse, attack it.
SRI advocates, including PAM, believe that finding factors (not recognized by the market) having an impact on the enterprise value of a company will add value to a client's portfolio. PAM's social screening methodology seeks to expose hidden risks and liabilities a company faces while also identifying quality management and governance practices.
You be the judge. The resources below includes studies, books and articles that address the question of performance in SRI portfolios. Our conclusion is that SRI incurs no financial sacrifice and, in some cases, can provide for additional portfolio value.
SRI Studies *
An exhaustive bibliography of quantitative studies looking at the impact of social screening on investment performance.
The SRI Advantage
Why Socially Responsible Investing Outperforms Financially *.
Written and edited by PAM co-founder Peter Camejo, this book makes a strong case for SRI's outperformance and then examines the implications for investment professionals, investors, pension funds, and community & non-profit groups.
Performance of the largest SRI mutual funds *
A study showing that
greater than 70% of the largest SRI mutual funds received top marks from either Morningstar, Lipper, or both.
Corporate Responsibility & Financial Performance
The Paradox of Social Cost *.
Pava & Krausz' landmark 1995 book reports the results of two original empirical studies on the relationship between corporate social responsibility and traditional financial performance. Included is a review of 21 empirical studies testing the SRI outperformance claim. Of these studies, 12 indicated that SRI outperforms, 8 indicated no loss or gain in performance, and 1 reported lower performance.
Finally, the Social Investment Forum * annually awards the Moskowitz Prize to the research paper that has the greatest impact in the SRI industry. Among the recent recipients are:
 Guerard * (1996)
finds that social screens have no detrimental impact on his quantitative active management strategy.
Waddock and Graves * (1997)
show a strong relationship between corporation reputation (as defined by the Fortune most-admired list) and ratings of corporate social responsibility
Russo and Fouts * (1998)
find that, after adjusting for everything imaginable, companies with better environmental records appear to have better-than-average returns on assets.
Repetto and Austin (2000)
use discounted cash flow models and scenario analysis to show that the financial impact of future environmental regulation may be quite material (up to 11% of market value) for U.S. pulp and paper companies in coming years.
Dowell, Hart, Yeung * (2001)
show that between 1994 and 1997, U.S. multinational corporations with high global environmental standards tended to have higher price/book ratios than companies adopting local environmental standards, even after adjusting for factors such as industry membership, R&D intensity, and advertising intensity.
* PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of these web-sites provided here, you are leaving this site. Progressive Asset Management and Financial West Group make no representation as to the completeness or accuracy of information provided at these sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, sites, information and programs made available through this site. When you access one of these sites, you are leaving Progressive Asset Management's web-site and assume total responsibility and risk for your use of the sites you are linking to.
Progressive Asset Management (PAM) is the
socially responsible division of Financial West Group (FWG).
Securities offered
through Registered Representatives of
Financial West Group, Member
FINRA,
SIPC. FWG is responsible for
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Progressive Asset Management 520 Third Street, Suite 204, Oakland, CA 94607
(510) 622-0202
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