Efficiency of Socially Responsible Investments in the Context of Portfolio Management

In this paper, we expand the literature on multi-criteria portfolio modeling for socially responsible investments using multi-directional efficiency analysis (MEA). We apply a positive screening based on MEA efficiency scores, and also directly exploit the information contained in the efficiency score in order to compute portfolio weights. We conduct a broad empirical analysis testing multiple portfolio strategies based on public equity market data of socially responsible investments from the US and Europe going back to 2005. We show that the explicit consideration of a social responsibility variable in the MEA portfolio models has a positive effect on the financial and social performance of all asset allocations strategies. Furthermore, we find that portfolios constructed using the proposed efficiency analysis in their asset allocation outperform the strategies which merely employ a positive efficiency screening. These portfolios also provide superior results compared to a naive or value-weighted strategy with respect to either the financial or social performance, implying a small tradeoff depending on the considered region, and outperform a mean-variance strategy in both the financial and social dimension. These results clearly outline the benefits of MEA portfolio modeling, not only for socially responsible investors, but also traditional investors