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Australian Socially Responsible Funds: Performance, Risk and Screening Intensity

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Abstract

We investigate the performance and risk of Socially Responsible Investment (SRI) equity funds in the Australian market and find no significant difference between the returns of SRI and conventional funds. In an extension to prior literature, we examine the impact of the number of positive, negative and total screens funds impose on performance and risk. We find little evidence of positive or negative screening impacting total return, but find weak evidence that funds with more screens overall provide better risk-adjusted performance. Positive screening significantly reduces funds’ risk. However, negative screening significantly increases risk and reduces funds’ abilities to form diversified portfolios.

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Abbreviations

AGSM-CRIF:

Australian Graduate School of Management Centre for Research in Finance

HML:

The mimicking book-to-market portfolio

RIAA:

Responsible Investment Association Australasia

SMB:

The mimicking size portfolio

SRI:

Socially Responsible Investment

TNA:

Total net asset

UMD:

The mimicking momentum factor

Pos:

Number of positive screens employed by an SRI mutual fund

Neg:

Number of negative screens employed by an SRI mutual fund

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Acknowledgments

The authors thank Jessica Jouning and Wei-Lun Lee for their capable research assistance, and Karen Benson and Tom Smith for their helpful comments. The authors also gratefully acknowledge the financial support extended by the Accounting and Finance Association of Australia and New Zealand for.

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Authors and Affiliations

  1. School of Finance, Actuarial Studies and Applied Statistics, Level 4, College of Business and Economics Building 26C, Australian National University, Canberra, ACT, 0200, Australia

    Jacquelyn E. Humphrey

  2. UQ Business School, University of Queensland, Brisbane, Australia

    Darren D. Lee

Authors
  1. Jacquelyn E. Humphrey
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  2. Darren D. Lee
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Correspondence to Jacquelyn E. Humphrey.

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Humphrey, J.E., Lee, D.D. Australian Socially Responsible Funds: Performance, Risk and Screening Intensity. J Bus Ethics 102, 519–535 (2011). https://doi.org/10.1007/s10551-011-0836-7

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