Journal of Business Ethics

, Volume 135, Issue 2, pp 381–397 | Cite as

Do Socially Responsible Investment Policies Add or Destroy European Stock Portfolio Value?

  • Benjamin R. Auer


Using a new dataset of environmental, social, and corporate governance company ratings for the European market, this article examines whether socially responsible stock selection adds or destroys value in terms of portfolio performance. From 2004 to 2012, we find the following: (i) Negative screens excluding unrated stocks from a representative European stock universe allow investors to significantly outperform a passive investment in a diversified European stock benchmark portfolio. (ii) Additional negative screens based on environmental and social scores neither add nor destroy portfolio value, when cut-off rates are not too high. In contrast, governance screens can significantly increase portfolio performance under similar conditions. Thus, investors in the European stock market can do (financially) well while doing (socially) good. (iii) Because of a loss of diversification, positive screens can cause portfolios to underperform the benchmark. This implies that investors should concentrate on eliminating the worst firms. (iv) Our results are robust along several dimensions, namely, choice of performance measure, time, test parametrisation, portfolio weighting scheme, approximation of the risk-free rate, and consideration of transaction costs.


Socially responsible investing Portfolio management Negative Screening Bootstrap testing Sustainalytics 


G11 G12 G20 G23 M14 



The author thanks an anonymous reviewer for highly valuable comments and suggestions. Special gratitude goes to Dirk Söhnholz (Veritas Investment GmbH) and Hauke Hess (Pall Mall Investment Management GmbH) for financial support and assistance in the data preparation process, respectively.


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Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  1. 1.University of LeipzigLeipzigGermany

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