The Performance of European Socially Responsible Fixed-Income Funds

Abstract

Evidence to date on the performance of Socially Responsible Investments (SRI) has almost exclusively been conducted within equity markets. We provide new evidence on the potential of SRI for other asset classes, by assessing the performance of SRI fixed-income funds. This is the first comprehensive investigation on the performance of European SRI bond and balanced funds, domiciled in the main European markets (France, Germany and the UK), compared to characteristics-matched conventional funds.Our results, based on a conditional multi-factor model with time-varying alphas and betas, show that in most cases European SRI balanced funds exhibit no statistically significant differences in performance in relation to conventional funds, both during the overall sample period as well as during recession and expansion periods separately. With regard to SRI bond funds, empirical evidence is mixed. French SRI bond funds match the performance of their conventional peers, German funds slightly outperform and UK funds significantly underperform conventional funds. Furthermore, during expansion periods, funds from the Euro-Area countries significantly outperform their conventional peers, whereas during recessions they are able to perform at least as well as conventional funds. These results mean that SRI funds in the fixed-income area seem to provide additional protection to investors in market downturns.