New Study Demonstrating Positive SRI Returns Without Negative Screens Wins 2008 Moskowitz Prize for SRI Research
October 28, 2008
Berkeley CA - The 2008 Moskowitz Prize for Socially Responsible Investing has been awarded to a new study that demonstrates that socially responsible investors can do both well and good by adopting the best-in-class method for their portfolios while refraining from utilizing negative screens.
The winning paper – “The Wages of Social Responsibility” by Meir Statman of Santa Clara University and Denys Glushkov of the University of Pennsylvania’s The Wharton School – explores the return advantage for investors who tilt towards companies with high scores on social responsibility characteristics, but who steer clear of excluding stocks of ‘shunned’ companies, like tobacco, alcohol, gambling, firearms, military, and nuclear operations.
Their findings have several implications. They offer fresh evidence that investors who hope to use social research metrics to improve their returns may be on the right track. But to exploit this opportunity, a best-in-class approach might be needed, as opposed to the primarily exclusionary approach currently used by most U.S. social investors.
Statman and Glushkov's findings with respect to 'shunned' companies replicate and expand on the work of Harrison Hong and Martin Kacperczyk, whose Honorable Mention study in 2007 demonstrated the strong historical performance of 'sin' stocks (those involved in alcohol, tobacco, and gambling). The study suggests that both social investors and their critics have been right - social metrics may be useful in obtaining returns, but the sectors social investors have avoided have, in many instances, delivered superior performance over time.
"This Prize highlights a superb piece of quantitative research, but it is also important to note the greater contribution Meir Statman has made to the social investment field,” said Lloyd Kurtz, Moskowitz Prize administrator and senior portfolio manager at Nelson Capital Management, an investment advisory affiliate of Wells Fargo.
"Meir has been one of only a few strong finance theorists to make a serious study of social investing," added Kurtz. "His work in the field has been of consistently high quality, from his pioneering 1993 paper (with Hamilton and Jo) on SRI mutual fund performance, to his analysis of social indexes, which won an Honorable Mention in the 2005 Moskowitz Prize competition. Over the years Meir has been both a friend and critic of social investing, and his constructive engagement has been of great value to practitioners."
Awarded by the Center for Responsible Business at the Haas School of Business, in cooperation with the Social Investment Forum, the Prize promotes the concept, practice, and growth of socially responsible investing.
With more than 30 papers under consideration from prominent researchers all over the world, this was the toughest field the judging panel has seen in the history of the Prize.
“Statman and Glushkov took the interesting approach of looking at companies with both high and low scores on social responsibility,” added Brian Bruce, Moskowitz Prize judge and Director of the ENCAP Investments & LCM Group Alternative Asset Management Center at the Cox School of Business. “This is the first paper that shows that returns for the SRI portfolios are helped by good SRI stocks and hurt by bad SRI stocks with the sum being returns approximately equal to the S&P 500.”
Honorable mention was also awarded to Javier Gil-Bazo, Pablo Ruiz-Verdu, and Andre A. P. Santos from Universidad Carlos III de Madrid for their paper “The Performance of Socially Responsible Mutual Funds: The Role of Fees and Management Companies”. Their paper sheds light on the debate about the financial performance of socially responsible investment (SRI) mutual funds by separately analyzing the contributions of before-fee performance and fees to SRI funds' performance and by investigating the role played by fund management companies in the determination of these variables.
The sponsors of the Moskowitz Prize are: Calvert Group, First Affirmative Financial Network, KLD Research & Analytics, Inc., Nelson Capital Management, Neuberger Berman, Rockefeller and Co., and Trillium Asset Management.
For more information, visit the Moskowitz Research Program.
