Financial Performance of Environmentally Responsible Investment Funds: A Systematic Review

Studies assessing the link between corporate social and/or environmental performance and financial performance of firms, as well as those evaluating the performance of socially responsible investments and investment funds have failed at reaching a consensus. Therefore, this paper conducts an evidence-based evaluation of the performance of environmentally responsible investment funds. Hypotheses on fund underperformance, outperformance, and neutral performance, are drawn from the literature on corporate social and/or environmental performance, modern portfolio theory and tested utilising a systematic review. The evidence indicates mixed results. If statistical significance is used as a screening criterion, half of the population have neutral results. An empirico-theoretical model of factors influencing financial performance outcomes of responsible investment funds used to evaluate the studies finds that the studies does not address or account for the factors influencing performance outcomes. This emphasises that it is important that the findings from each primary study should be evaluated in its context and by taking into account its shortcomings. The model is also presented as a schema of necessary factors to be considered in future studies. The paper concludes by arguing for considerations of environmental performance of investment funds and challenging the tenets of modern portfolio theory.