In socially responsible investment (SRI) literature, several conclusions have been drawn on whether SRIs are able to generate market-adequate returns or not. On the one hand, creating SRIs might be costly due to less investment opportunities and on the other hand, firms targeted by SRIs may exhibit sustainable profitability. In this paper we analyze whether one or both of these explanations is/are appropriate for an approved list of a sustainable-impact bank. We use novel and unique firm-level screening data to measure sustainability based on the Global Alliance for Banking on Values principles. Following this initiative, sustainable impact should be considered as the overall investment object, whereas financial investment objectives act as constraints to guarantee sustainability. In this paper, we find that standardized sustainability ratings from external rating agencies are not useful in measuring sustainable impact on firm-level basis. High ratings fail to guarantee a business approach without a contradiction to certain sustainability aspects. Considering the diversification abilities of shrunk sustainability impact asset universes, we show that different levels of sustainable screening strictness cause in-sample diversification constraints. However, portfolios with the highest sustainability impact do not exhibit significantly negative abnormal returns compared to a five factor market model as well as to the MSCI All Country World Index out of sample. Finally, we document a strong improve in portfolio sustainability measures when increasing screening requirements.
contribution to scientific community
2017 International Conference on Multiple Objective Programming and Goal Programming