Finance and accounting

Corporate social responsibility and financial

performance
Eveline Van de Velde, Wim Vermeir and Filip Corten

Eveline Van de Velde is a Junior Abstract

Fund Manager in Sustainable Purpose – This paper aims to investigate the interaction between sustainability and financial
Management at Dexia Asset performance. Can socially responsible investors, integrating environmental, social and ethical issues in
Management, Brussels, their investment policy, expect the same return as traditional investors?
Belgium. Tel: þ 32 (2) 222 66 94; Design/methodology/approach – Based on the sustainability ratings of a specialized rating agency,
E-mail: eveline.vandevelde@ Vigeo, a Fama and French approach is performed to adapt for style biases in the performances.
dexia-am.com Findings – The results indicate that, on a style-adjusted basis, high sustainability-rated portfolios have
Wim Vermeir is Global Head of performed better than low-rated portfolios, but, probably due to the short horizon, not to a significant
Equity and Sustainable extent. The same results are found for four out of the five sub-ratings of which the sustainability rating is
Management at Dexia Asset composed, suggesting that sustainability is a broad and multidimensional concept that cannot be
Management, Brussels, attributed to one specific theme or topic. The results also indicate that investors are ready to pay a
Belgium. Tel: þ 32 (2) 222 07 82; premium for companies with good management of their relations with shareholders, clients and
suppliers.
E-mail:
wim.vermeir@dexia-am.com Research limitations/implications – Owing to the rather new concept of socially responsible investing
and in order to avoid survivorship bias, only a relative time horizon is considered.
Filip Corten is Senior Fund
Manager in Sustainable Practical implications – There is no cost involved in integrating sustainable dimensions in the
investment policy.
Management at Dexia Asset
Management, Brussels, Originality/value – The paper shows the relevance of socially responsible investing when one adjusts
for style differences within the portfolio.
Belgium. Tel: þ 32 (2) 222 07 86;
E-mail: Keywords Social responsibility, Economic sustainability, Ethical investment
fillip.corten@dexia-am.com Paper type Research paper

ocially responsible investment (SRI) combines investors’ financial objectives with

S their concerns about social, environmental and ethical (SEE) issues (UK Social
Investment Forum[1]). SRI is an investment process that considers the social,
environmental or ethical consequences taken into account in the selection, retention and
realization of investments, both positive and negative, within the context of rigorous financial
analysis (Mansley, 2000).
The question that arises with SRI investments is the profitability of those strategies. Is the
performance of SRI strategies as good as or as bad as traditional investment strategies? A
way to investigate the performance of SRI investment strategies is to evaluate the financial
performance of so-called ‘‘socially responsible companies’’, namely companies that are
integrating social and environmental factors into their global strategic decision-making
policies and practices. A socially responsible company puts the interests of its shareholders
on a par with the social, community and environmental interests of third parties or
stakeholders involved in its activities. By controlling the impact of its activities on
stakeholders, it targets a threefold economic, social and environmental performance
through which it contributes to the overall objective of sustainable development. That is why
socially responsible companies are also called sustainable companies.

DOI 10.1108/14720700510604760 VOL. 5 NO. 3 2005, pp. 129-138, Q Emerald Group Publishing Limited, ISSN 1472-0701 j CORPORATE GOVERNANCE j PAGE 129
 As socially responsible investors are typically invested in these sustainable companies, the
performance of socially responsible companies is a key element in their performance. We
will investigate the interaction between the corporate social responsibility of a company and
its financial performance. The question is whether this focus on social and environmental
issues will have a positive or negative effect on shareholder interests. A negative impact
could be explained by the fact that the integration of third party interests could lead to a
sub-optimization of shareholders’ interests, resulting in an under-performance of the share
price. A positive impact could be explained by the fact that an integration of the interests of
all stakeholders could create shareholder value by reducing non-financial risk and creating
long-term growth opportunities for the company.
The aim of the paper is to investigate the interaction between corporate social responsibility
and financial performance. We will do this both for overall corporate social performance and
for responsibility on specific dimensions, like environmental or social responsibility.
The paper is organized as follows. A literature overview locates the subject. The data
segment explains the figures used in our study. The methodology describes the way of
working for this paper. Afterwards, we will discuss the performance results, before and after
correction for style biases. The conclusion summarizes our findings.

Literature overview
Many studies have described the performance of socially responsible investments, with
somewhat different results.
Orlitzky et al. (2003) performed a meta-analysis of 52 studies in search for the relationship
between corporate social performance and corporate financial performance. The results
confirm that socially responsible investing pays off. The relationship is strongest for the
social dimension within corporate social performance. When isolating the environmental
responsibility we come to the same conclusion but to a lesser extent.
Diltz (1995) and Sauer (1997) concluded that there were no statistically significant
performance differences between socially responsible investments and traditional
investments. Diltz examined the alphas and abnormal returns for 28 socially screened
equity portfolios in order to obtain this conclusion. There was no adjustment for style factors.
Sauer investigated the Domini Social Index performance by risk-adjusted performances and
came to the same conclusion.
Bauer et al. (2002) investigated the performance of international ethical mutual funds,
corrected for investment style. The results show no significant difference in risk-adjusted
returns between ethical and conventional funds for the period 1990-2001.
Kneader et al. (2001) investigated the financial performance of 40 international ethical funds
and 40 international non-ethical funds against their benchmark. The results show no
statistical difference between their performances. They found that ethical funds have lower
risk in comparison to their non-ethical counterparts. The cross-sectional analysis indicates
that the risk-adjusted returns are not significantly related to the size, age or ethical status of
the fund.
Other studies isolate the impact of separate ‘‘social’’ factors on financial performance.
Derwall et al. (2003) include the Innovest eco-efficiency scores for US companies, meaning
that they only look at the environmental factor. After controlling for risk and investment style,
they found that the high-ranked portfolio outperforms the low-ranked portfolio. The results
become significant when adjusted for industry effects.
Becker and Huselid (1998) focus on the relationship between human resources
management and firm performance. An analysis of more than 500 multi-industry US
companies shows that a high performance HRM system has an economically and
statistically positive effect on company performance.
Gompers et al. (2003) focus on the corporate governance aspect. They construct a
‘‘governance index’’ using 24 governance rules on 1,500 large US firms. An investment

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strategy that purchased shares of well-governed firms and sold shares in badly-governed
firms earned an abnormal return during the 1990s. The paper implemented
style-adjustments.
Bauer et al. (2003) also analyzed the effect of corporate governance on stock returns and
firm value. They used the Deminor Corporate Governance ratings to build a portfolio of
well-governed companies against a portfolio of companies with bad corporate governance.
They find a positive result for style-adjusted returns, with weaker positive results after
adjustment for country differences.
In summary, most studies report an out-performance for SRI portfolios compared with more
traditional investment approaches, even if differences are not always statistically significant.
When we look at specific dimensions of sustainability, more significant and positive results
arise, indicating that some aspects of corporate social responsibility could also add
shareholder value.

Data
In order to measure the sustainability of a company, we used the Vigeo corporate social
responsibility scores. Vigeo is an independent corporate social responsibility agency that
screens European quoted companies on CSR.
The scores of Vigeo contain information on five dimensions of corporate social responsibility:
1. Human resources.
2. Environment.
3. Customers and suppliers.
4. Community and society.
5. Corporate governance[2].
For each dimension, Vigeo assesses the corporate social performance with a sustainability
score. For the purpose of this paper, we constructed a total sustainability score as a
summation of the ratings on the five individual dimensions. The Jarque-Bera test indicates
the normality of the total and individual sustainability scores.
The Vigeo scores have been available since 2000 for a representative sample of euro zone
companies. The period of investigation ranges from 1 January 2000 to the end of November
2003. Companies that disappeared because of merger or acquisition events were excluded
from the investment universe for the year the event took place. Table I gives an overview of
the number of companies for which data were available. The table shows that over the years,
the number of screened companies has increased.
The data for share prices, market capitalization and book values were obtained from
DataStream.

Table I Sector composition

2000 2001 2002 2003

Consumer discretionary 40 56 52 57
Consumer staples 15 20 22 28
Energy 5 8 10 9
Financials 50 64 75 65
Health care 6 12 16 14
Industrials 29 37 45 45
IT 16 32 40 31
Materials 21 29 22 25
Telecom 10 16 17 12
Utilities 12 15 16 18
Total 204 289 315 304

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 Methodology

Construction of four portfolios based on total sustainability rating

In order to measure the impact of corporate social responsibility on performance, we have
constructed four different portfolios based on the companies’ total sustainability rating. All
portfolios are market-cap weighted. The first portfolio (called ‘‘Best’’) consists of the
companies that within their sector have a sustainability rating of at least one standard
deviation above the mean. The second portfolio, called ‘‘Good’’, consists of companies with
a sustainability rating between the sector mean and one standard deviation above. Further,
companies with sustainability scores between the mean and one standard deviation below
are combined in the ‘‘bad’’ portfolio and finally, the ‘‘worst’’ portfolio consists of scores that
are lower then one standard deviation below the sector mean. The advantage of this method
is that each sector is equally represented in the four portfolios (Table II).
As could be expected from a normal distribution explained earlier, the two medium portfolios
have the largest number of companies.

Performance analysis
On first January each year, the portfolios are recalculated and rebalanced. In the first part of
the result segment, we give descriptive performance statistics, like the monthly return over
the period, the standard deviation of the return and the minimum and the maximum return. A
second part makes a deeper investigation of the subject in order to correct for risk and style
factors, like market sensitivity, size and value. This analysis enables us to isolate the pure
sustainability effect in the performance differences. We have based our analysis on the
Fama and French (1992) model, which not only incorporates the market factor but also the
size and book-to-market variables, as determinants of financial performance. The analysis
will give us the opportunity to examine what part of the difference in performance can be
explained by differences in financial characteristics and what part is caused by differences
in sustainable characteristics.
The Fama and French model can be expressed with the following OLS regression:
R it 2 R ft ¼ ai þ b0i ðR mt 2 R ft Þ þ b1i SMB t þ b2i HMLt þ 1it

where:
B Rit ¼ return on portfolio i at month t.
B Rft ¼ one month Euribor rate.
B Rm ¼ return on a broad market index (MSCI EMU).
B SMB ¼ the return difference between a small cap portfolio and a large cap portfolio.
B HML ¼ the return difference between a value portfolio and a growth portfolio.
B 1it ¼ error term.

Results for the individual sustainable dimensions

We also implemented the same methodology as in the previous part for the scores on each
of the five individual dimensions Vigeo uses (human resources, environment, customers and
suppliers, community and society and corporate governance). This analysis gives a better

Table II Composition of the four portfolios

2000 2001 2002 2003

Best 51 62 62 63
Good 65 82 104 103
Bad 62 101 107 89
Worst 26 44 42 49
Total 204 289 315 304

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 insight into the underlying mechanisms driving the interaction between corporate social
responsibility and financial performance.

Results

Financial performance of the total sustainability rating without style adjustments

The relative performance of the four portfolios, reflecting different levels of sustainability is
given in Figure 1. The ‘‘bad’’ portfolio, namely the portfolio with the below-average
sustainability score, performs the best of the four portfolios. The worst performance comes
from the ‘‘best’’ portfolio: the portfolio of companies with the highest overall sustainability
rating had the worst performance over the period. This can be observed in Table III, which
also shows that the bad portfolio had the lowest volatility. The table shows that raw return
differences between the four portfolios are relatively low compared with the differences
observed in volatility. Analysis confirms that the differences in raw returns between portfolios
are not statistically significant.

The observed difference in performance between the different portfolios does not permit a
conclusion as to the interaction between total sustainability rating and financial
performance. The question is what part of the performance difference can be attributed
to the differences in total sustainability rating and what is due to differences in financial
characteristics. This question is addressed by making a Fama and French correction for
market and style factors.

Figure 1 Relative performance of market-weighted portfolios ranked on total sustainability scores versus MSCI EMU

Table III Raw results of the total sustainability rating

Portfolio Average return* (%) SD (%) Max. (%) Min. (%)

Best 21.09 6.58 15.25 215.12

Good 20.86 6.85 13.99 218.72
Bad 20.77 5.93 9.61 218.38
Worst 20.96 6.76 9.91 216.44

Note: *Monthly returns

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 Financial performance of the total sustainability rating with style adjustments
The results of this analysis are shown in Table IV. Overall, the Fama and French model is able
to explain more than 90 percent of the performance for three of the four portfolios and more
than 77 percent for the worst portfolio. The market factor (MARKET) is the most important
factor in explaining the performance of the four portfolios. We notice that the market
sensitivity of portfolios with an above-average sustainability rating (‘‘best’’ and ‘‘good’’) is
higher than the market sensitivity of portfolios with a below-average rating (‘‘bad’’ and
‘‘worst’’). The small cap factor (SMB) is significant for the performance of the ‘‘bad’’ portfolio,
showing that this portfolio had a considerable over-weighting in small caps. Even if the other
results are not significant, it is however noteworthy that both portfolios with a below-average
sustainability rating (‘‘bad’’ and ‘‘worst’’) have a positive exposure to the small cap factor,
whereas the above-average sustainable portfolios have a negative exposure. This suggests
the existence of a large cap bias in sustainability ratings.
The value factor (HML) is not significant for any of the four portfolios. Nevertheless, we again
notice a different sign for above and below-average sustainability scores: the value factor is
negative for low-rated portfolios and neutral or positive for high-rated portfolios. The Fama
and French analysis thus show that when analyzing the performance differences between
the four portfolios, the raw returns need to be corrected for differences in market sensitivity
and small cap biases, and to a lesser extent for a value/growth bias.
The result of this style correction is also shown in Table IV, where the column alpha gives the
corrected, unbiased performance of the four portfolios. On a style-adjusted basis, the best
performing portfolio is the ‘‘good’’ portfolio, which had a monthly out-performance of 20 bp,
whereas the bad and the worst portfolios under-performed by 34 and 19 bp respectively.
Even if the alphas are not significant, the sustainable effect was positive during the
observation period. The fact that this was not the case for raw returns is due to the more
sustainable portfolios tending to be biased towards higher market sensitivity, higher
capitalization and growth biases that lead during the observation period to
under-performance. The existence of a sustainable alpha nevertheless gave the
opportunity to investors, in particular socially responsible investors, to exploit the
sustainable effect to create out-performance.

Financial performance of the human resources rating

The rating on human resources regards the continuous improvement of employment
conditions, evaluation of job skills and employability (Table V). The improvement of industrial
relations is also a subject of this domain. The social dialogue between management and
employees is the most important factor here.
Even if the style-adjusted performance differences are not statistically significant, it is
interesting to note that the best human resources portfolio delivered the best performance,
with a style-adjusted performance of 21 bp. The companies with the best human resources
policy tend to have a higher market sensitivity, whereas companies with lower scores tend to
be small-cap biased.

Table IV Style-adjusted performances of total sustainability rating

Portfolio Alpha % MARKET SMB HML Adj. R 2 %

Best 0.00 0.96*** 20.0482 0.0073 91

(0.03) (21.29) (20.69) (0.13)
Good 0.21 1.02*** 20.0098 0.0144 94
(0.79) (26.78) (20.16) (0.32)
Bad 20.34 0.84*** 0.2087*** 20.0336 91
(21.14) (20.39) (3.32) (20.68)
Worst 20.19 0.9*** 0.1567 20.0874 77
(20.38) (12.16) (1.39) (20.99)

Notes: *Significant at 10 percent level; **Significant at 5 percent level; ***Significant at 1 percent level

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Table V Style-adjusted performances of the human resources rating
Portfolio Alpha % MARKET SMB HML Adj. R 2 %

Best 0.21 1.06*** 0.0821 20.0200 91

(0.59) (20.70) (1.05) (20.33)
Good 20.09 0.97*** 20.0762 0.0371 93
(20.34) (24.02) (21.23) (0.77)
Bad 20.09 0.85*** 0.1509*** 0.0051 91
(20.33) (20.52) (2.41) (0.10)
Worst 0.04 0.96*** 0.1529 20.1519 82
(0.09) (13.88) (1.45) (21.84)

Notes: *Significant at 10 percent level; **Significant at 5 percent level; ***Significant at 1 percent level

Financial performance of the corporate governance rating

The corporate governance domain rates the transparency and the efficiency of governance
towards shareholders and other stakeholders (Table VI).
Overall, above-average corporate governance portfolios perform better than those ranked
below average, but care should be taken because the alphas are not significant. The bad
governance portfolios tend to be more small-cap oriented. The value factor is negative and
significant in the case of the best portfolio. This finding is in line with the results of Gompers
et al. (2003) and Bauer et al. (2003).

Financial performance of the society and community rating

With regard to the society and community domain, the rating is based on the way the
company integrates the interests of the community and the territories in which it operates
(Table VII). The community involvement looks at the contribution of the company towards the
community, such as public causes and local employment training.
The pattern is less clear for this dimension than for the other dimensions: the ‘‘worst’’
portfolio has the highest out-performance, but the ‘‘best’’ portfolio has also a positive
out-performance. The sensitivity to different style factors is more mixed.

Financial performance of the environment rating

The rating for the environment domain is mainly based on the way the company considers
the impact of its activities on the environment (Table VIII).
The only portfolio with a positive alpha is the ‘‘best’’ portfolio, environmental excellence
leading to a monthly out-performance of 22 bp. There is no significant small-cap or value
bias inherent in these portfolios. A surprise is the very low beta for the environmentally
worst-performing portfolio. We do not find a higher market risk attached to environmentally
badly-performing companies. This is in contrast to the findings of Feldman et al. (1997), who
report that well-performing companies at an environmental level, tend to have a significantly
lower beta.

Table VI Style-adjusted performances of the corporate governance rating

Portfolio Alpha % MARKET SMB HML Adj. R 2 %

Best 0.26 1.03*** 20.0134 20.1133* 89

(0.65) (18.45) (20.15) (21.70)
Good 0.14 0.93*** 20.0528 0.0345 96
(0.72) (32.33) (21.20) (1.00)
Bad 20.19 0.94*** 0.1781*** 0.0305 91
(20.62) (21.15) (2.63) (0.57)
Worst 0.12 0.85*** 0.1166 0.0200 78
(0.25) (12.63) (1.13) (0.25)

Notes: *Significant at 10 percent level; **Significant at 5 percent level; ***Significant at 1 percent level

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 Table VII Style-adjusted performances of the society and community rating
Portfolio Alpha % MARKET SMB HML Adj. R 2 %

Best 0.25 0.99*** 20.0568 20.0116 93

(0.88) (24.39) (20.91) (20.24)
Good 20.03 1.03*** 0.1246*** 20.0055 96
(20.14) (31.80) (2.53) (20.14)
Bad 20.26 0.90*** 0.0870 0.0504 93
(20.97) (23.39) (1.48) (1.10)
Worst 0.37 0.84*** 0.0609 20.1716* 72
(0.66) (10.58) (0.50) (21.79)

Notes: *Significant at 10 percent level; **Significant at 5 percent level; ***Significant at 1 percent level

Table VIII Style-adjusted performances of the environment rating

Portfolio Alpha % MARKET SMB HML Adj. R 2 %

Best 0.22 0.96*** 0.0070 20.0018 93

(0.76) (23.96) (0.11) (20.04)
Good 20.02 0.98*** 0.0332 0.0535 92
(20.07) (22.34) (0.49) (1.02)
Bad 20.04 1.03*** 0.0865 20.0617 91
(20.13) (20.90) (1.15) (21.04)
Worst 0 0.60*** 0.0135 0.0856 73
(20.01) (10.99) (0.16) (1.31)

Notes: *Significant at 10 percent level; **Significant at 5 percent level; ***Significant at 1 percent level

Financial performance of the customer and supplier rating

A socially responsible company has to look at the needs and demands of its clients and
suppliers, a flexible and transparent attitude towards them will result in a high rating for this
domain. An adaptation of the supply chain to social and environmental factors and the
information around the products can lead towards better client relations. A clear business
contract strategy can result in easier relations with the suppliers (Table IX).
The companies with the best customer and supplier ratings out-performed by 38 bp,
whereas the worst companies under-performed by 52 bp. The companies with the best
customer and supplier ratings have a significant growth exposure, suggesting that investors
are ready to pay a premium for these companies. The lowest customer and supplier
portfolios have a significant small cap exposure.

Conclusion
Analyzing the impact of corporate social responsibility on financial performance is a
complex issue. Comparing the raw performances of sustainability-screened portfolios with
traditional portfolios does not answer the question, because performance differences are

Table IX Style-adjusted performances of the customer and supplier rating

Portfolio Alpha % MARKET SMB HML Adj. R 2 %

Best 0.38 1.05*** 20.0814 20.1441*** 89

(0.95) (18.47) (20.94) (22.12)
Good 20.27 0.85*** 0.0064 0.0313 94
(21.18) (26.22) (0.12) (0.81)
Bad 0.28 0.99*** 0.0627 0.0672* 95
(1.18) (29.35) (1.22) (1.67)
Worst 20.52 1.09*** 0.2208*** 20.0816 85
(21.05) (15.44) (2.05) (20.97)

Notes: *Significant at 10 percent level; **Significant at 5 percent level; ***Significant at 1 percent level

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more biased by differences in financial characteristics. After making style corrections by
using the Fama and French model, we see that during our observation period the portfolios
of companies with a low sustainability rating under-performed the market (between 19 and
34 bp on a monthly basis) whereas the portfolios with high-rated sustainable companies
out-performed (between 0 and 21 bp). The observed performance differences are not high
enough to be statistically significant. This is also a consequence of the relatively short time
horizon used in the study, due to the fact that the sustainable analysis of companies is a
relatively new phenomenon. Given the long-term orientation of sustainable development,
successful performances from sustainable investing may result from a longer time horizon.
The results suggest that investors, especially sustainable investors, could exploit this
sustainable effect in order to create out-performance. Our results also indicate that it is a
necessary condition to manage style biases because these biases tend to outweigh the
impact of the sustainability factor. Our analysis shows that high-sustainability portfolios tend
to have a higher market and large-cap exposure, which if not properly neutralized in the
portfolio construction process, can offset the positive sustainable alpha. Successful SRI
performances result from the integration of high quality sustainable screening and rigorous
risk management, which can be further leveraged by active management.
In order to understand the underlying dynamics of sustainability and financial performance
better, we made the same analysis for five dimensions of sustainability ratings. The
style-adjusted performances of four of the five dimensions were very similar, as for the global
sustainability rating, suggesting that sustainability is a broad multi-dimensional concept,
adding value by interaction with the different stakeholders, and cannot be attributed to one
specific theme or topic. Only on one dimension – society and community – was no
out-performance of the best-ranked portfolios observed. These positive (but once again not
statistically significant) results were observed for corporate governance, human resources
policy, clients and suppliers and environment. It is also interesting to note that the best-rated
portfolios on corporate governance and clients and suppliers have a significant growth
exposure, indicating that investors are ready to pay a premium for companies with a good
management of their relations with shareholders, clients and suppliers.
Further research needs to be carried out in order to investigate the dynamics of sustainability
and performance, e.g. by analyzing longer time periods, other investment universes or other
rating models than the Vigeo ratings we used in this paper. Investigating the origin of the
large-cap bias in sustainable universes is another topic: the question is whether this is really
linked to a higher corporate social responsibility among large caps, or whether this is due to
a weakness in the sustainability screening process.
In any event this study confirms the findings of other studies: after correction for style biases
sustainable investments performed slightly better than traditional investments – but not
enough to result in a statistically significant out-performance. It at least shows that if properly
managed, there is no cost involved in integrating sustainable dimensions in the investment
policy.

Notes
1. Social Investment Forum (SIF), available at: www.socialinvest.org
2. Since January 2004, Vigeo has created a separate rating for human rights. During our research
period, human rights was part of human resources, community and society and customers and
suppliers. Available at: www.vigeo.com

References
Bauer, R., Günster, N. and Otten, R. (2003), ‘‘Empirical evidence on corporate governance in Europe:
the effects on stock return, firm value and performance’’, working paper, September.
Bauer, R., Koedijk, K. and Otten, R. (2002), ‘‘International evidence on ethical mutual fund performance
and investment style’’, working paper, November.
Becker, B.E. and Huselid, M.A. (1998), ‘‘Human resources strategies, complementarities and firm
performance’’, paper presentated to the Academy of Management Annual Meeting, Seattle, WA, July.

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VOL. 5 NO. 3 2005 CORPORATE GOVERNANCE PAGE 137
 Derwall, J., Günster, N., Bauer, R. and Koedijk, K. (2003), ‘‘The eco-efficiency premium in the US equity
market’’, working paper, Erasmus University, Rotterdam.
Diltz, J.D. (1995), ‘‘Does social screening affect portfolio performance?’’, The Journal of Investing,
Spring, pp. 64-9.
Fama, E.F. and French, K.F. (1992), ‘‘The cross-section of expected stock returns’’, Journal of Finance,
Vol. 4, pp. 427-66.
Feldman, S.J., Soyka, P. and Ameer, P. (1997), ‘‘Does improving a firm’s environmental management
system and environmental performance result in a higher stock price?’’, Journal of Investing, Vol. 6 No. 4,
pp. 87-97.
Gompers, P.A., Ishii, J.L. and Metrick, A. (2003), ‘‘Corporate governance and equity prices’’, Quarterly
Journal of Economics, Vol. 118 No. 1, pp. 107-55.

Kneader, N., Gray, R.H., Power, D.M. and Sinclair, C.D. (2001), ‘‘Evaluating the performance of ethical
and non-ethical funds: a matched pair analysis’’, working paper.
Mansley, M. (2000), Socially Responsible Investment: A Guide for Pension Funds and Institutional
Investors, Monitor Press, Sudbury.
Orlitzky, M., Schmidt, F.L. and Reynes, S.L. (2003), ‘‘Corporate social and financial performance: a
meta-analysis’’, Organization Studies, Vol. 24 No. 3, pp. 403-41.
Sauer, D.A. (1997), ‘‘The impact of social-responsibility screens on investment performance: evidence
from the Domini 400 Social Index and Domini Equity Mutual Fund’’, Review of Financial Economics, Vol. 6
No. 2, pp. 137-49.

Further reading
Fama, E.F. and French, K.F. (1993), ‘‘Common risk factors in the returns on bonds and stocks’’, Journal of
Financial Economics, Vol. 33, pp. 3-56.
Guerard, J. (1997), ‘‘Is there a cost of being socially responsible in investing?’’, Journal of Investing,
Vol. 6 No. 4, pp. 31-5.

Hamilton, S.H. and Statman, M. (1993), ‘‘Doing well while doing good’’, Financial Analyst Journal,
November-December, pp. 62-6.
Vermeir, W. and Corten, F. (2001), ‘‘Sustainable investment: the complex relationship between
sustainability and return’’, Banken Financiewezen, January, pp. 33-8.

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