The Opportunity Cost of Negative Screening in Socially Responsible Investing

By Pieter Jan Trinks, Bert Scholtens. 2017

172 citations recorded by the source corpus.

This paper investigates the impact of negative screening on the investment universe as well as on financial performance. We come up with a novel identification process and as such depart from mainstream socially responsible investing literature by concentrating on individual firms’ conduct and by studying a much wider range of issues. Firstly, we study the size and financial performance of fourteen potentially controversial issues: abortion, adult entertainment, alcohol, animal testing, contraceptives, controversial weapons, fur, gambling, genetic engineering, meat, nuclear power, pork, (embryonic) stem cells, and tobacco. We investigate an international sample of more than 1,600 stocks for more than twenty years. We then analyze the impact of applying negative screens to a market portfolio. Our findings suggest that the choice for negative screening strategies does matter for the size of the investment universe as well as for risk-adjusted return performance. Investing in controversial stocks in many cases results in additional risk-adjusted returns, whereas excluding them may reduce financial performance. These findings suggest that there are opportunity costs to negative screening.

Subfields: Accounting, Economics and Econometrics, Finance

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Lammertjan Dam
2. Elena Escrig-Olmedo
3. M. Mulder
4. Arjan Trinks
5. Bert Scholtens
6. O. Weber
7. Isabel‐María García‐Sánchez

In Economics and Econometrics

1. Lammertjan Dam
2. M. Mulder
3. Arjan Trinks
4. Elena Escrig-Olmedo
5. M. Folque
6. Teresa Corzo Santamaría
7. Bert Scholtens

In Finance

1. M. Mulder
2. Arjan Trinks
3. Lammertjan Dam
4. Bert Scholtens
5. Elena Escrig-Olmedo
6. O. Weber

Citations in the corpus

• (Preprint) (2018, background): “As Trinks and Scholtens (2015) state, despite the gradual maturity of sustainable investment, the original practice of negative screening is a frequent strategy (Eurosif 2014).”
• Sustainable development and financial system: IntegratingESGrisks through sustainable investment strategies in a climate change context (2021, background): “Admitting that the use of different screens can lead to different performance patterns and investment styles, Trinks & Scholtens (2017) find that the use of negative screening is financially suboptimal due to the opportunity costs.”
• Fossil Fuel Divestment and Portfolio Performance (2018, background): “For comparison, the frequently studied alcohol, tobacco, and gambling sectors comprise about 2% of the market (Trinks and Scholtens, 2017).”