The relationship between financial performance and SRI strategies on mutual funds - Evidence from Europe

Abstract

Social responsibility has become a hot topic during the past few years, and one aspect of it is the benefits and costs it brings to a socially responsible investor. The purpose of this study is to examine whether different SRI strategies used by equity mutual funds are related to their financial performance. By using multiple regression analysis and a sample of 127 European SRI mutual funds over the period from 2007 to 2019, I do not find a significant relationship between screening intensity and financial performance for SRI funds, neither a significant curvilinear relationship. Furthermore, there is no evidence that shareholder activism in ESG matters would positively relate to financial performance. However, I find evidence that funds with below-average or low ESG ratings outperform funds with above-average or high ESG ratings. This result suggests that, on average, investors pursuing to invest in highly rated ESG funds pay a premium on their investment strategy.