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The Investment Performance of Socially Responsible Investment Funds in Australia


Interest in the notion of the possible financial sacrifice suffered by socially responsible investment (SRI) fund investors for considering ethical, social and environmental issues in their investment decisions has spawned considerable academic interest in the performance of SRI funds. Both the Australian and international research literature have yielded largely mixed results. However, several of these studies are hampered by methodological problems which can obscure the significance of reported results, such as the use of small sample sizes, inconsistencies in the time frames selected to analyse performance and different modelling frameworks used to estimate investment returns. This study attempts to redress some of these issues by investigating the returns performance of 89 ethical funds in Australia over the period 1986–2005. Using a multi-factor CAPM model [Fama, E. F., and K. R. French (1996) J. Finance 51(1), 55] (which controls for factors such as size, book-to-market value and momentum) we find that ethical funds significantly under-perform the market in Australia, particularly in the most recent 5 years of our sample period (2000–2005). Risk adjusted returns (using Jensen’s alpha) indicate that average annual underperformance is around 1.52% in the 2000–2005 period for our sample and .88% over the whole sample period. Our results contrast with many previous studies (both Australian and international), which have not found statistically significant differences in the performance of ethical funds relative to market benchmarks and/or a matched sample of conventional funds.

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Correspondence to Stewart Jones.

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Stewart Jones is a Professor of Accounting with the University of Sydney, appointed in 2001. His research interests embrace credit risk modelling, capital markets research, standard setting and accounting theory.

Sandra van der Laan is a lecturer in the Discipline of Accounting at the University of Sydney. Her research focuses on accounting as a social discourse and accounting as a mechanism to discharge a broad range of corporate accountabilities.

Geoff Frost is an Associate Professor of Accounting at the University of Sydney. His research interests include corporate social responsibility and ethical investment.

Janice Loftus is a senior lecturer in accounting at the University of Sydney. Her current research interests include financial accounting and corporate social responsibility reporting.

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Jones, S., van der Laan, S., Frost, G. et al. The Investment Performance of Socially Responsible Investment Funds in Australia. J Bus Ethics 80, 181–203 (2008).

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  • investment performance
  • SRI funds
  • capital asset pricing model