SRI Notes

sristudies.org - New and Improved

This blog has been in suspended animation for awhile because I have been hard at work on another project:  revamping sristudies.org. 

I started sristudies.org in 1999, as a way to make available online citations and notes on the (then) small number of studies of socially responsible investing.  Nine years on, the number of studies has grown exponentially, and I have to set aside more and more time each year to try and keep it reasonably up-to-date.

The job is already too hard for one person to do well, so I have begun to take the first steps to make sristudies.org a more collaborative project.  The big changeover is now almost complete - I've moved the site to a wiki platform (hosted by the nice people at wikispaces.com), and updated most of the links so they refer to the new site.  You can see the new site here.  On the new platform I'll be able to give the database more consistent attention, and, I hope, will be able to put some structure around a database that now numbers several hundred studies. 

I know, it doesn't look like much...we'll fix the graphics, it's on my list. 

What I have done is update the new site with all the strong studies I saw in 2007.  The simplest way to see these is to click the 'Bibliography' link and use your browser's search function to find all instances of '2007' on the page.  Another way is to type '2007' in the search box.

I won't even attempt to summarize the class of '07 - the studies were uniformly thoughtful and challenging.  You could start with Alex Edmans' Moskowitz Prize-winning piece, but I'd strongly recommend that you also have look at what Al Goss has been up to, and you should probably give Derwall's latest study a close look, too, and I don't know how to classify Christine Arena's book but you should look at it...and so on.  A lot is happening, not just at the conferences and investment firms, but also among academic researchers around the world.

With the new platform, I hope it will be easier to keep up, and, ultimately, make this a collaborative effort.  For now I'm leaving the old site up, but ultimately the sristudies.org web address will redirect to the wiki.

Moskowitz Prize - The New Trend

Last Sunday we had the pleasure of awarding the Moskowitz Prize to Alex Edmans of the Wharton School for his outstanding study of the 100 Best Companies to Work For.  Alex's study covers the entire period that these ratings have been published in Fortune.  His presentations at SRI in the Rockies were superb (see links below).  If you're going to Wharton, get signed up for this guy's classes - he is a great lecturer, and he is rock solid on financial theory and his knowledge of the recent literature.

• The Haas press release is here
• Alex's study can be downloaded here
• An audio recording of Alex's talk at SRI in the Rockies is here, and his slides are here

The winners of the Moskowitz Prize are taking on a different character, and I wanted to take note of it here.  In the 'old days' (pre-2004), studies tended to focus on the broad concepts - social responsibility, sustainability, etc.  In retrospect, Marc Orlitzky's study was the culmination of this line of thought.  He demonstrated that the concept of social responsibility was not just conceptually valid, but could also be framed as a valid statistical construct.  He then argued that social responsibility had been positively associated with financial outcomes (although the effects he found were much stronger for accounting-based than for market-based measures).

If Orlitzky was right that social policies have been financially beneficial (and there is still plenty of debate about that), the question becomes one of how the mechanism operates.  It's probably true that some social policies are good for financial results while others are bad.  But which policies contribute positively and which contribute negatively?

The three most recent winners have zoomed in on a single issue and tried to answer these questions.  Nadja Guenster looked at the impact of Innovest environmental ratings on fundamentals and returns.  Brad Barber examined the impact of the CalPERS corporate governance program on stock valuations.  And Alex's study looks at how employee relations policies impact portfolio performance.

In each case, the analyst focused on a measurable and important subcategory, and demonstrated that there was a positive historical association with returns.  Each study focused on a social variable that was well-specified, and used state-of-the-art risk models to assess performance.

Before we get too excited about these performance studies, however, it's important to remember last year's Honorable Mention paper by Harrison Hong and Marcin Kacperczyk, which showed that sin stocks have had exceptional returns over the years.  Like Gunster, Barber, and Edmans, this study zooms in on an important social variable and looks at returns through the prism of a modern risk model.

This trend strikes me as a very healthy development for social investment research.  Academics are moving away from general conceptions of social responsibility and doing detailed analysis of the individual stakeholder categories.  The results have generally been happy, so far, but, as the case of sin stocks show, social investors should be ready for unpleasant surprises as well. 

We know that, in aggregate, social screens haven't added value over the past 20 years.  Now we know some have been positive and some have been negative.  As we go further down this path, social investors will increasingly be challenged with hard data to re-consider some of their portfolio construction decisions.  That will be healthy, but it will not be comfortable.

2006 Moskowitz Prize

I had the pleasure last night of awarding the 2006 Moskowitz Prize to Brad Barber of Cal Davis for his excellent study of the CalPERS corporate governance focus list.  The Center for Responsible Business at Haas has issued a press release on the award, which is here.

Two other papers received Honorable Mention, the first time the judges have recognized more than one runner up.  Both are interesting and very much worth your time:

Harrison Hong and Marcin Kacperczyk did a terrific retrospective analysis of tobacco stock returns, using state-of-the-art risk models and going back to the 1920s.  Social investors won't be thrilled to hear that this one class of sin stocks has delivered significantly superior risk-adjusted performance for most of that time period.

The judges also awaded an Honorable Mentionn to Baruch Lev, Christine Petrovits, and Suresh Radhakrishnan for their paper on the relationship between corporate charitable giving and firm growth.  This is the first study of this topic I have seen since Navarro's Journal of Business study back in 1988, and one that will be of great interest to SRI clients.

I have posted abstracts of all of these studies in the bibliography section of sristudies.org.

Update to sritudies.org

I've done my annual update on the sristudies.org bibiliography page.  Sorry, time doesn't permit a list of recent additions, but you can find them easily enough - just go to the web page, and using the search function in your browser (the "Find" command on the "Edit" menu in Firefox), look for "2006" or "2005".

One reason I've never put much directory functionality into sristudies.org is that Google is so powerful.  Try this - go to Google and type in:

site:www.sristudies.org 2004

That gives you a list of every instance of 2004 on sristudies.org.  When Google gets around to indexing the updated site (next week?  next month?) you can use this command to get a comprehensive list of more recent studies.

If you notice typos etc...I know, I know...anyone know a good proofreader?

Center for Responsible Business Website

The Center for Responsible Business at Haas has updated its website, and it now includes information on the Moskowitz Research Program and the Moskowitz Prize, including a section on the volunteer judges who make the prize possible.

Now Affiliated With...

Starting today, this blog will be affiliated with the Center for Responsible Business at the Haas School of Business, University of California, Berkeley.  A full press release on this event, which also covers sristudies.org and the Moskowitz Prize, is here.

I believe this is the first time a top 10 business school has formally acknowledged socially responsible investing as a key area of research. Thanks to Kellie McElhaney at the Center for Responsible Business for making this a reality.