Jeroen Derwall

The Economic Value of Corporate Eco-Efficiency

This study adds new insights to the long-running corporate environmental-financial performance debate by focusing on the concept of eco-efficiency. Using a new database of eco-efficiency scores, we analyse the relation between eco-efficiency and financial performance from 1997 to 2004. We report that eco-efficiency relates positively to operating performance and market value. Moreover, our results suggest that the markets valuation of environmental performance has been time variant, which may indicate that the market incorporates environmental information with a drift. Although environmental leaders initially did not sell at a premium relative to laggards, the valuation differential increased significantly over time. Our results have implications for company managers, who evidently do not have to overcome a tradeoff between eco-efficiency and financial performance, and for investors, who can exploit environmental information for investment decisions.

Socially Responsible Fixed‐Income Funds

A hand-held device, such as a hammer drill, has a replaceable axially extending holder for a working tool. The device includes a sensor and a signal transmitter for adjusting its operating characteristics. The holder has through openings containing locking elements and control elements. The locking elements and control elements are radially displaceable within the through openings by a locking sleeve. The position of the locking sleeve in the axial direction of and relative to the holder determines the cooperation of the sensor and the signal transmitters.

Socially Responsible Investing: The Eco-Efficiency Premium Puzzle

There exists a widespread consensus among mainstream academics and investors that socially responsible investing (SRI) leads to inferior, rather than superior, portfolio performance. Using Innovests well-established corporate eco-efficiency scores, we provide evidence to the contrary. We compose two equity portfolios that differ in eco-efficiency characteristics and find that our high-ranked portfolio provided substantially higher average returns compared to its low-ranked counterpart over the period 1995-2003. Using a wide range of performance attribution techniques to address common methodological concerns, we show that this performance differential cannot be explained by differences in market sensitivity, investment style, or industry-specific components. We finally investigate whether this eco-efficiency premium puzzle withstands the inclusion of transaction costs scenarios, and evaluate how excess returns can be earned in a practical setting via a best-in-class stock selection strategy. The results remain significant under all levels of transactions costs, thus suggesting that the incremental benefits of SRI can be substantial.

Stakeholder Relations and Stock Returns: On Errors in Expectations and Learning

A significant number of institutional investors publicly state the belief that corporate stakeholder relations are associated with firm value in a manner that the financial market fails to understand. We investigate whether stakeholder information predicted risk-adjusted returns due to errors in investors’ expectations and ultimately ceased to do so as attention for such information increased. We build a stakeholder-relations index (SI) for a wide range of U.S. firms over the period 1992-2009 and provide evidence that the SI explained errors in investors’ expectations about firms’ future earnings. The SI was positively associated with long-term risk-adjusted returns, earnings announcement returns, and errors in analysts’ earnings forecasts over the period 1992-2004. However, as attention for stakeholder issues became more widespread, subsequently, these relationships diminished considerably. The results are consistent with the idea that increased investor attention for stakeholder issues eventually eliminates mispricing.