An assessment of variances and covariances of European SRI funds returns : does the intensity of extra-financial negative screening matter?

Social responsible investment is surging in all industrial countries, despite the conventional wisdom that the inclusion of extra-financial criteria in the stock selection process should arm the financial performance of these funds. As a consequence, many papers have attempted to measure the financial performance of SRI funds and compared it to the performance of conventional funds with similar characteristics. According to this literature, we use a traditional CAPM model that allows for time-varying volatility to compare the risk-adjusted returns of several portfolios of SRI funds with differences in the intensity of extra-financial negative screening. Our key result shows that both alpha and beta are negatively correlated to the intensity of negative screenings. Thus, it appears that the risk-adjusted returns of SRI funds significantly differ from the returns of conventional funds if this latter criterion is taken into account.