The authors differentiate themselves from other work in the field by analysing how total and risk-adjusted returns are distributed, compared at various intervals away from the median (cross-sectional analysis).

Sustainalytics Prize for Excellence in Responsible Investment Research: HONOURABLE MENTION

Jianan Du, Brandon Thomas, and Janis Zvingelis, Envestnet Asset Management

Key findings

  • Average and median returns of SRI (socially responsible investment) and non-SRI funds are statistically indistinguishable from each other.
  • SRI funds total and risk-adjusted returns are distributed more narrowly around their median than non-SRI funds, implying a tempered response to extreme events.
  • SRI funds in the top half of the investment universe underperform non-SRI funds, yet SRI funds will outperform non-SRI funds when returns are in the bottom half, especially during bear markets.

Previous research focuses on average performance. Their research shows return distributions are different for SRI and non-SRI funds, and this has implications for comparative performance and risk exposures.

Du et al used Morningstar Direct Open End mutual fund database as the source of performance returns and stock holdings for SRI and non-SRI domestic equity funds from January 1999 to June 2013. The study includes approximately 3,000 non-SRI and 100 SRI funds, which account for 50% of the SRI funds tracked in the database.

RIQ 5 Du photo

Key results

Average performance

The average performance of SRI and non-SRI funds are nearly identical at the mean, implying the socially conscious investor is just as likely to outperform or underperform as the conventional investor on average. In other words, there is no statistical evidence that the SRI funds will underperform the non- SRI fund.

Return distributions

The SRI funds total and risk-adjusted return distributions are more concentrated around their median and have narrower tails than the non-SRI funds. This may be interpreted as:

  • A smaller difference in total return between the best and worst performing SRI fund, compared to the best and worst performing non-SRI funds.
  • For funds that outperform their median, the risk-adjusted return is higher for non-SRI funds compared to SRI funds. However, for funds that underperform their median, non-SRI funds have a lower risk-adjusted return compared to SRI funds. These differences in risk-adjusted return performance between SRI and non-SRI funds become more pronounced during bear markets.
  • Narrower tails imply less extremes, meaning the total return of a top performing SRI fund will be lower than a top performing non-SRI fund, but the total return of the worst SRI fund will be higher than the worst non- SRI fund.


Investors considering implementation with active managers should view investing in SRI managers as a very competitive alternative to the non- SRI managers. First, the average performance of the SRI managers is statistically identical to that of non-SRI managers. More importantly, in case of underperformance an SRI manager will underperform by a considerably lower margin than a comparable non-SRI manager.

In practical terms, the study results suggest that more risk averse investors, who are particularly concerned about the potential size of underperformance should implement their equity allocations with SRI managers, because on average the SRI and non-SRI performance is virtually identical, but when SRI managers underperform, they do so by less than non-SRI managers.

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    RI Quarterly Vol. 5: Highlights from the PRI Academic Network Conference 2014

    November 2014