The question has plagued socially responsible investing (SRI) since its inception in the early 1970s: Will investors earn a lower return if they put their money only into companies that—fill in the blanks—don’t harm the environment, don’t take military contracts, don’t discriminate in the workplace, etc.?
For quite some time, the consensus among serious financial types was that SRI would lose money; then, it was that SRI at best performed about as well a stock-index fund. The SRI trade group Social Investment Forum trumpets (PDF) claims that a survey of 160 SRI funds found that 65 percent of them outperformed the market in 2009. But a paper published this week in France (PDF) found that from the period 2002-09, French SRI funds performed slightly worse than the market but not at a level that is statistically significant. Moreover, it found that “SRI funds provided no protection from market downturns during this period, as illustrated by the considerable increase of extreme risks borne by these funds.”
Who’s right? It’s tempting to think that the difference is in the nationality, but actually a lot of the discrepancy probably has to do with the time frame. If you look closely at the Social Investment Forum numbers, you’ll see some numbers the group does not want to highlight. Namely, that in a five-year time frame, the percentage of SRI mid-cap funds that beat the benchmark was zero; the percentage of SRI small-cap funds that beat the benchmark was zero; and the percentage of SRI balanced funds that beat the benchmark was zero. The French appear to have a point.