Mixed Results, Mixed Motivations
Adjusting those firms for risk, the study then looked at portfolios comprised of companies scored on SRI criteria on an ascending basis and found that as pro-social behavior in companies rises, stock market outcomes decline. The same results, more or less, were found on an individual company basis, as opposed to portfolios of companies.
None of this is a 'pure' view of the impact of SRI, however, in part because the criteria used to screen companies on their SRI performance have different objectives. Corporate governance, for instance, is generally about protecting the rights and interests of shareholders from the depredations of insiders. Environmental criteria, on the other hand, put a value on climate and other considerations, effectively putting the interests of other stakeholders above those of shareholders. It may well also be that the period studied, which included both the great financial crisis and its monetary-policy-fueled aftermath, is not a fair sample.
To be sure, the findings don't argue, per se, against the practice of socially responsible investing, which investors may believe produces excellent results on an 'all-in' basis taking into account its impact on more than simply financial grounds. It is also true that the decision to opt for SRI investments is a lot more simple for an individual making the call on her own behalf than it would be for pension fund trustee acting for others.
There are also complex arguments to be made about the efficiency of the use of capital markets, as opposed to outright regulation, as a means of encouraging the desired behavior by corporations.
Instead, the upshot may be that SRI is like a cake; you can have it or you can eat it, but not both.
James Saft is a columnist for Reuters, which provided this column. The opinions expressed are his own.