Socially responsible investments: doing good while doing well in developed versus emerging markets?

Abstract

We investigate the performance of Socially Responsible Investments (SRI) in both developed and emerging countries. We do so by examining the performance of self-constructed equity portfolios based on SRI's mutual funds' current and historical holdings. Based on the current holdings, the SRI equity portfolios from emerging and developed countries significantly outperform their benchmarks, except for the Japanese stock portfolio. We mitigate the current holdings approach's potential look-ahead and survivorship bias by employing the historical holdings approach. The results change dramatically in developed markets: the outperformance of SRI is not significant in the U.S. – the dominant developed markets in the sample – and Japan. In emerging markets, the SRI's outperformance remains significant. It outperforms in both BRICS and Non-BRICS, and in terms of income, it consistently outperforms in the markets of middle-income countries.