‘Best in class' socially responsible investment. The actual performance evaluation between the US and Europe

This study investigates the realized performance of socially responsible investments (SRIs) in US and in European financial markets. We simulate a real investment strategy based on continuous portfolio optimization in the risk-return space. We assume the role of an investor who bases his or her choices on a 'best in class' approach. We evaluate performance using the actual returns achieved by these strategies. Our results show that the socially responsible investor must pay a cost in terms of a lower investment-risk premium according to his or her appetite for risk and geographical area. In the US, SRI investments yield lower returns than non-SRI investments; in Europe, SRI investments yield lower returns and more volatility. Finally, SRIs have greater capacity to reduce risk in terms of both losses and recovery speed.