IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-01344699.html
   My bibliography  Save this paper

The impact of screening strategies on the performance of ESG indices

Author

Listed:
  • Amélie Charles

    (Audencia Business School)

  • Olivier Darné

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

  • Jessica Fouilloux

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper analyzes the effect of screening strategies on the performance of ESG indices. We use 17 ESG indices that are actively managed, representing different index providers and ESG rating agencies, different ESG screening strategies, two types of weights for the construction of the ESG indices, and covering different investment regions (World, Europe and the US). The performance comparison between ESG and non-ESG indices and within ESG indices is examined from different risk-adjusted performance measures based on standard and tail risk measures. We show that the ESG screens for equities neither lead to a significant out-performance nor an under-performance compared to the benchmarks. For the ESG indices we find that no index provider displays the highest (or lowest) performances in each region of interest. We also find that the selection criteria lead to higher concentration in some sectors or countries, implying effects on the risk-adjusted performance of between ESG and non-ESG indices and also within ESG indices. Finally, the results on the ESG indices suggest that the weights used to construct these indices (sustainability-score weights vs market cap-weights) seem to have an impact on their risk and their performance.

Suggested Citation

  • Amélie Charles & Olivier Darné & Jessica Fouilloux, 2016. "The impact of screening strategies on the performance of ESG indices," Working Papers hal-01344699, HAL.
    • Handle: RePEc:hal:wpaper:hal-01344699
    Note: View the original document on HAL open archive server: https://hal.science/hal-01344699
    as

    Download full text from publisher

    File URL: https://hal.science/hal-01344699/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," The Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
    2. Gunther Capelle-Blancard & Stéphanie Monjon, 2011. "The Performance of Socially Responsible Funds: Does the Screening Process Matter?," Working Papers 2011-12, CEPII research center.
    3. repec:dau:papers:123456789/7347 is not listed on IDEAS
    4. Costanza Consolandi & Ameeta Jaiswal-Dale & Elisa Poggiani & Alessandro Vercelli, 2009. "Global Standards and Ethical Stock Indexes: The Case of the Dow Jones Sustainability Stoxx Index," Journal of Business Ethics, Springer, vol. 87(1), pages 185-197, April.
    5. Chan, Pak To & Walter, Terry, 2014. "Investment performance of “environmentally-friendly” firms and their initial public offers and seasoned equity offers," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 177-188.
    6. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "The price of ethics and stakeholder governance: The performance of socially responsible mutual funds," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 302-322, June.
    7. Galema, Rients & Plantinga, Auke & Scholtens, Bert, 2008. "The stocks at stake: Return and risk in socially responsible investment," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2646-2654, December.
    8. Massimiliano Caporin & Grégory M. Jannin & Francesco Lisi & Bertrand B. Maillet, 2014. "A Survey On The Four Families Of Performance Measures," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 917-942, December.
    9. Rob Bauer & Jeroen Derwall & Rogér Otten, 2007. "The Ethical Mutual Fund Performance Debate: New Evidence from Canada," Journal of Business Ethics, Springer, vol. 70(2), pages 111-124, January.
    10. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
    11. Kempf, Alexander & Osthoff, Peer, 2007. "The effect of socially responsible investing on portfolio performance," CFR Working Papers 06-10, University of Cologne, Centre for Financial Research (CFR).
    12. El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2388-2406, September.
    13. Post, Thierry & van Vliet, Pim & Levy, Haim, 2008. "Risk aversion and skewness preference," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1178-1187, July.
    14. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    15. Belghitar, Yacine & Clark, Ephraim & Deshmukh, Nitin, 2014. "Does it pay to be ethical? Evidence from the FTSE4Good," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 54-62.
    16. Dowd, Kevin, 2000. "Adjusting for risk:: An improved Sharpe ratio," International Review of Economics & Finance, Elsevier, vol. 9(3), pages 209-222, July.
    17. Fang, Hsing & Lai, Tsong-Yue, 1997. "Co-Kurtosis and Capital Asset Pricing," The Financial Review, Eastern Finance Association, vol. 32(2), pages 293-307, May.
    18. Bauer, Rob & Koedijk, Kees & Otten, Roger, 2005. "International evidence on ethical mutual fund performance and investment style," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1751-1767, July.
    19. Gunther Capelle†Blancard & Stéphanie Monjon, 2014. "The Performance of Socially Responsible Funds: Does the Screening Process Matter?," European Financial Management, European Financial Management Association, vol. 20(3), pages 494-520, June.
    20. David J. Collison & George Cobb & David M. Power & Lorna A. Stevenson, 2008. "The financial performance of the FTSE4Good indices," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 15(1), pages 14-28, January.
    21. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    22. Sébastien Pouget, 2014. "On the Financial Performance of Socially Responsible Investments," Bankers, Markets & Investors, ESKA Publishing, issue 128, pages 31-35, January-F.
    23. Alexander Kempf & Peer Osthoff, 2007. "The Effect of Socially Responsible Investing on Portfolio Performance," European Financial Management, European Financial Management Association, vol. 13(5), pages 908-922, November.
    24. Kraus, Alan & Litzenberger, Robert H, 1976. "Skewness Preference and the Valuation of Risk Assets," Journal of Finance, American Finance Association, vol. 31(4), pages 1085-1100, September.
    25. Rockafellar, R. Tyrrell & Uryasev, Stanislav, 2002. "Conditional value-at-risk for general loss distributions," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1443-1471, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Borja Diez-Cañamero & Tania Bishara & Jose Ramon Otegi-Olaso & Rikardo Minguez & José María Fernández, 2020. "Measurement of Corporate Social Responsibility: A Review of Corporate Sustainability Indexes, Rankings and Ratings," Sustainability, MDPI, vol. 12(5), pages 1-36, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Guillermo Badía & Maria C. Cortez & Luis Ferruz, 2020. "Socially responsible investing worldwide: Do markets value corporate social responsibility?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(6), pages 2751-2764, November.
    2. Belghitar, Yacine & Clark, Ephraim & Deshmukh, Nitin, 2014. "Does it pay to be ethical? Evidence from the FTSE4Good," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 54-62.
    3. Leite, Paulo & Cortez, Maria Céu, 2014. "Style and performance of international socially responsible funds in Europe," Research in International Business and Finance, Elsevier, vol. 30(C), pages 248-267.
    4. Bilbao-Terol, Amelia & Arenas-Parra, Mar & Cañal-Fernández, Verónica, 2016. "A model based on Copula Theory for sustainable and social responsible investments," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 19(1), pages 55-76.
    5. Luluk Widyawati, 2020. "A systematic literature review of socially responsible investment and environmental social governance metrics," Business Strategy and the Environment, Wiley Blackwell, vol. 29(2), pages 619-637, February.
    6. Federica Ielasi & Monica Rossolini, 2019. "Responsible or Thematic? The True Nature of Sustainability-Themed Mutual Funds," Sustainability, MDPI, vol. 11(12), pages 1-17, June.
    7. Costanza Torricelli & Beatrice Bertelli, 2022. "ESG screening strategies and portfolio performance: how do they fare in periods of financial distress?," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0087, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    8. Muñoz, Fernando, 2016. "Cash flow timing skills of socially responsible mutual fund investors," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 110-124.
    9. Al Ayoubi, Khalil & Enjolras, Geoffroy, 2022. "Does disinvestment from fossil fuels reduce the financial performance of responsible sovereign wealth funds?," Journal of Multinational Financial Management, Elsevier, vol. 64(C).
    10. Nelson Areal & Maria Cortez & Florinda Silva, 2013. "The conditional performance of US mutual funds over different market regimes: do different types of ethical screens matter?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(4), pages 397-429, December.
    11. Federica Ielasi & Paolo Ceccherini & Pietro Zito, 2020. "Integrating ESG Analysis into Smart Beta Strategies," Sustainability, MDPI, vol. 12(22), pages 1-22, November.
    12. Ghoul, Sadok El & Karoui, Aymen, 2022. "Fund performance and social responsibility: New evidence using social active share and social tracking error," Journal of Banking & Finance, Elsevier, vol. 143(C).
    13. María del Mar Miralles-Quirós & José Luis Miralles-Quirós, 2017. "Improving Diversification Opportunities for Socially Responsible Investors," Journal of Business Ethics, Springer, vol. 140(2), pages 339-351, January.
    14. Andreas G. F. Hoepner & Lisa Schopohl, 2018. "On the Price of Morals in Markets: An Empirical Study of the Swedish AP-Funds and the Norwegian Government Pension Fund," Journal of Business Ethics, Springer, vol. 151(3), pages 665-692, September.
    15. Henke, Hans-Martin, 2016. "The effect of social screening on bond mutual fund performance," Journal of Banking & Finance, Elsevier, vol. 67(C), pages 69-84.
    16. Thomas Walker & Kerstin Lopatta & Thomas Kaspereit, 2014. "Corporate sustainability in asset pricing models and mutual funds performance measurement," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(4), pages 363-407, November.
    17. Vincenzo D'Apice & Giovanni Ferri & Mariantonietta Intonti, 2021. "Sustainable disclosure versus ESG intensity: Is there a cross effect between holding and SRI funds?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(5), pages 1496-1510, September.
    18. Elias, Erragragui, 2017. "Is it Costly to Introduce SRI into Islamic Portfolios?," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 25, pages 23-54.
    19. Oikonomou, Ioannis & Platanakis, Emmanouil & Sutcliffe, Charles, 2018. "Socially responsible investment portfolios: Does the optimization process matter?," The British Accounting Review, Elsevier, vol. 50(4), pages 379-401.
    20. Nicholas Apergis & Vassilios Babalos & Christina Christou & Rangan Gupta, 2019. "Are there Really Long-Run Diversification Benefits from Sustainable Investments?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(2), pages 141-163, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-01344699. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.