Introduction
Literature Review
The GPFG and the AP-funds: Balancing Ethical and Financial Objectives
Performance Effects of Exclusionary Screening
Research Questions and Hypotheses Development
Data and Methodology
Data and Portfolio Construction
Methodology
Results
Descriptive Statistics
Total exclusions | Total re-inclusions | Number of excluded companies (per year) | Average time of exclusion (in years) | |||||
---|---|---|---|---|---|---|---|---|
Mean | Min | Max | Mean | Min | Max | |||
Panel A: cross-sectional characteristics
| ||||||||
GPFG | 74 | 8 | 49.03 | 1 | 63 | 7.93 | 1 | 14 |
AP1–4 | 20 | – | 13.59 | 1 | 20 | 7.05 | 1 | 9 |
AP7 | 152 | 99 | 42.53 | 19 | 54 | 5.71 | 1 | 15 |
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Panel B: exclusion lists at year end
| |||||||||||||||
Exclusions by all funds | 26 | 40 | 35 | 20 | 40 | 45 | 56 | 97 | 109 | 115 | 115 | 118 | 121 | 125 | 129 |
Thereof excluded by
| |||||||||||||||
GPFG | – | 1 | 1 | 1 | 13 | 19 | 26 | 30 | 48 | 49 | 53 | 54 | 57 | 59 | 63 |
AP1–4 | – | – | – | – | – | 2 | 3 | 13 | 13 | 14 | 14 | 14 | 17 | 19 | 20 |
AP7 | 26 | 39 | 34 | 19 | 27 | 24 | 27 | 54 | 48 | 52 | 48 | 50 | 47 | 47 | 46 |
Thereof excluded due to
| |||||||||||||||
Environmental issues | 8 | 10 | 7 | 9 | 8 | 4 | 12 | 20 | 17 | 17 | 15 | 15 | 19 | 20 | 24 |
Human rights issues | 14 | 17 | 17 | 7 | 15 | 15 | 17 | 21 | 18 | 26 | 25 | 29 | 25 | 30 | 30 |
Labour rights issues | 9 | 18 | 15 | 6 | 8 | 8 | 7 | 8 | 8 | 7 | 8 | 7 | 7 | 6 | 7 |
Controversial weapons | 1 | 2 | 3 | 2 | 13 | 20 | 23 | 52 | 52 | 53 | 53 | 53 | 52 | 51 | 50 |
Tobacco | – | – | – | – | – | – | – | – | 17 | 17 | 19 | 19 | 21 | 21 | 21 |
Thereof located in the following regions
| |||||||||||||||
North America | 14 | 13 | 8 | 7 | 22 | 25 | 24 | 43 | 47 | 49 | 46 | 47 | 53 | 56 | 56 |
Europe | 5 | 9 | 7 | 4 | 9 | 12 | 10 | 20 | 23 | 24 | 26 | 26 | 23 | 22 | 22 |
Asia | 5 | 15 | 16 | 7 | 8 | 4 | 16 | 26 | 31 | 35 | 34 | 34 | 33 | 35 | 39 |
Australia | 1 | 2 | 2 | 1 | 1 | 2 | 2 | 6 | 6 | 4 | 4 | 4 | 5 | 5 | 5 |
Africa | – | – | – | – | – | – | 2 | 1 | – | – | – | – | – | – | – |
South America | 1 | 1 | 2 | 1 | – | 2 | 2 | 2 | 3 | 4 | 6 | 8 | 8 | 8 | 8 |
Thereof operating in the following industries
| |||||||||||||||
Aerospace and defence | – | 2 | 3 | 2 | 12 | 20 | 21 | 40 | 40 | 40 | 39 | 39 | 37 | 37 | 37 |
Chemicals related | 2 | 3 | 2 | 2 | 3 | 1 | – | 2 | 2 | 4 | 4 | 4 | 7 | 9 | 9 |
Construction and materials | – | – | – | – | – | – | – | 1 | 1 | 3 | 5 | 7 | 9 | 10 | 11 |
General retailers | 3 | 3 | 2 | 1 | 1 | 5 | 5 | 6 | 6 | 6 | 6 | 6 | 6 | 6 | 6 |
Industrial metals and mining | 2 | 4 | 2 | 1 | 1 | 4 | 8 | 13 | 13 | 11 | 11 | 13 | 14 | 15 | 16 |
Oil and gas related | 8 | 7 | 5 | 5 | 10 | 8 | 6 | 7 | 3 | 5 | 4 | 5 | 4 | 4 | 4 |
Tobacco | – | – | – | – | – | – | – | – | 17 | 17 | 17 | 17 | 18 | 18 | 18 |
Other industries | 11 | 21 | 21 | 9 | 13 | 7 | 16 | 28 | 27 | 29 | 29 | 27 | 26 | 26 | 28 |
AP7 | AP1–4 | GPFG | ||||
---|---|---|---|---|---|---|
Equal weighted | Value weighted | Equal weighted | Value weighted | Equal weighted | Value weighted | |
Panel A: all excluded companies
| ||||||
Mean | 0.009 | 0.006 | 0.007 | 0.005 | 0.008 | 0.006 |
SD | 0.055 | 0.040 | 0.062 | 0.040 | 0.056 | 0.045 |
Min | −0.219 | −0.116 | −0.285 | −0.131 | −0.274 | −0.173 |
Max | 0.195 | 0.101 | 0.225 | 0.099 | 0.182 | 0.108 |
Count | 166 | 166 | 109 | 109 | 162 | 162 |
Panel B: mean returns by exclusionary screen
| ||||||
Human rights issues | 0.004 | 0.002 | 0.002 | 0.000 | 0.011 | 0.006 |
Labour rights issues | 0.009 | 0.003 | 0.005 | 0.004 | – | – |
Environmental issues | 0.007 | 0.005 | −0.040 | −0.041 | 0.000 | −0.006 |
Controversial weapons | 0.004 | 0.002 | 0.006 | 0.004 | 0.008 | 0.008 |
Tobacco | – | – | – | – | 0.012 | 0.013 |
Main Portfolio Performance Results
AP7 | AP1–4 | GPFG | ||||
---|---|---|---|---|---|---|
Equal weighted | Value weighted | Equal weighted | Value weighted | Equal weighted | Value weighted | |
(1) | (2) | (3) | (4) | (5) | (6) | |
Panel A: CAPM model
| ||||||
Alpha | 0.00450*** (2.632) | 0.00286* (1.833) | 0.00373 (1.192) | 0.00346 (1.127) | 0.00425* (1.654) | 0.00364 (1.618) |
MSCI | 1.067*** (27.642) | 0.755*** (17.640) | 1.044*** (11.652) | 0.495*** (7.592) | 0.962*** (12.445) | 0.737*** (14.479) |
Observations | 166 | 166 | 109 | 109 | 162 | 162 |
R
2
| 0.835 | 0.766 | 0.731 | 0.393 | 0.667 | 0.595 |
Adj. R
2
| 0.834 | 0.765 | 0.728 | 0.387 | 0.665 | 0.593 |
AP7 | AP1–4 | GPFG | ||||
---|---|---|---|---|---|---|
Equal weighted | Value weighted | Equal weighted | Value weighted | Equal weighted | Value weighted | |
(7) | (8) | (9) | (10) | (11) | (12) | |
Panel B: four-factor model
| ||||||
Alpha | 0.00361** (2.040) | 0.00204 (1.299) | 0.00519* (1.707) | 0.00345 (1.194) | 0.00373 (1.277) | 0.00292 (1.168) |
MSCI | 1.040*** (26.396) | 0.791*** (18.656) | 0.950*** (11.700) | 0.489*** (6.367) | 0.956*** (14.269) | 0.780*** (15.631) |
SMB | 0.393*** (3.119) | −0.216** (−2.160) | 0.436** (2.396) | −0.766*** (−3.755) | 0.419*** (2.686) | −0.0906 (−0.652) |
HML | 0.232* (1.917) | 0.172* (1.882) | 0.341 (1.386) | 0.270 (1.350) | −0.0106 (−0.056) | 0.0428 (0.301) |
WML | −0.0416 (−0.568) | 0.144** (2.130) | −0.208* (−1.793) | 0.0458 (0.677) | −0.0239 (−0.180) | 0.142 (1.439) |
Observations | 166 | 166 | 109 | 109 | 162 | 162 |
R
2
| 0.855 | 0.788 | 0.771 | 0.491 | 0.682 | 0.608 |
Adj. R
2
| 0.851 | 0.783 | 0.763 | 0.471 | 0.674 | 0.598 |
Performance Results by Screen
Panel A: CAPM model | Panel B: four-factor model | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Equal weighted | Value weighted | Equal weighted | Value weighted | |||||||
Alpha | Adj. R
2
| Alpha | Adj. R
2
| Obs. | Alpha | Adj. R
2
| Alpha | Adj. R
2
| Obs. | |
AP7 | ||||||||||
Human rights issues | 0.00002 (0.009) | 0.735 | −0.00092 (−0.405) | 0.583 | 166 | −0.00069 (−0.291) | 0.756 | −0.00215 (−0.939) | 0.618 | 166 |
Labour rights issues |
0.00598** (2.265) | 0.596 | 0.00093 (0.384) | 0.392 | 166 |
0.00562** (2.044) | 0.597 | 0.00160 (0.632) | 0.424 | 166 |
Environmental issues | 0.00286 (0.932) | 0.590 | 0.00174 (0.626) | 0.548 | 166 | −0.00069 (−0.290) | 0.756 | −0.00215 (−0.939) | 0.618 | 166 |
Controversial weapons | −0.00177 (−0.288) | 0.447 | −0.00355 (−0.578) | 0.466 | 166 | 0.00202 (0.385) | 0.490 | −0.00039 (−0.072) | 0.491 | 166 |
Tobacco | – | – | – | – | – | – | – | – | – | – |
AP1–4 | ||||||||||
Human rights issues | −0.00145 (−0.287) | 0.487 | −0.00297 (−0.572) | 0.473 | 85 | −0.00119 (−0.248) | 0.498 | −0.00236 (−0.477) | 0.483 | 85 |
Labour rights issues | 0.00339 (0.788) | 0.340 | 0.00341 (0.853) | 0.156 | 109 | 0.00360 (0.849) | 0.368 | 0.00288 (0.783) | 0.292 | 109 |
Environmental issues | −0.0500* (−1.976) | 0.249 | −0.0506* (−1.992) | 0.250 | 25 | −0.00119 (−0.248) | 0.498 | −0.00236 (−0.477) | 0.483 | 25 |
Controversial weapons | 0.00485 (1.336) | 0.770 | 0.00287 (0.761) | 0.645 | 94 | 0.00525 (1.535) | 0.791 | 0.00318 (0.839) | 0.636 | 94 |
Tobacco | – | – | – | – | – | – | – | – | – | – |
GPFG | ||||||||||
Human rights issues | 0.00721 (1.544) | 0.453 | 0.00444 (1.070) | 0.165 | 124 | 0.00787 (1.633) | 0.456 | 0.00342 (0.836) | 0.216 | 124 |
Labour rights issues | – | – | – | – | – | – | – | – | – | – |
Environmental issues | −0.00373 (−0.533) | 0.579 | −0.00972 (−1.298) | 0.537 | 113 | 0.00787 (1.633) | 0.456 | 0.00342 (0.836) | 0.216 | 113 |
Controversial weapons | 0.00436 (1.603) | 0.600 |
0.00517* (1.846) | 0.537 | 162 | 0.00327 (1.038) | 0.613 | 0.00427 (1.351) | 0.538 | 162 |
Tobacco |
0.00718** (2.309) | 0.591 |
0.00833** (2.169) | 0.461 | 70 |
0.00746* (1.948) | 0.608 | 0.00679 (1.598) | 0.553 | 70 |
Robustness Tests
Long-Short Portfolios
Panel A: CAPM model | Panel B: four-factor model | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Equal weighted | Value weighted | Equal weighted | Value weighted | |||||||
Alpha | Adj. R
2
| Alpha | Adj. R
2
| Obs. | Alpha | Adj. R
2
| Alpha | Adj. R
2
| Obs. | |
AP7 | ||||||||||
Norm-based screens | ||||||||||
HR minus LR | −0.00596* (−1.703) | 0.0454 | −0.00185 (−0.625) | 0.0477 | 166 | −0.00631* (−1.743) | 0.0926 | −0.00375 (−1.214) | 0.091 | 166 |
Env. minus HR | 0.00284 (0.928) | 0.00957 | 0.00266 (1.162) | 0.0283 | 166 | 0.00224 (0.713) | 0.0214 | 0.00235 (1.000) | 0.0215 | 166 |
Env. minus LR | −0.00312 (−0.759) | 0.00464 | 0.000811 (0.210) | 0.0723 | 166 | −0.00408 (−0.923) | 0.00294 | −0.00140 (−0.341) | 0.0914 | 166 |
Sector-based screens | ||||||||||
Weap. minus Tob. | – | – | – | – | – | – | – | – | – | – |
AP1–4 | ||||||||||
Norm-based screens | ||||||||||
HR minus LR | −0.00372 (−0.486) | 0.00173 | −0.00465 (−0.622) | 0.0992 | 85 | −0.00400 (−0.580) | 0.0762 | −0.00408 (−0.614) | 0.200 | 85 |
Env. minus HR | −0.0570** (−2.209) | 0.123 | −0.0498* (−1.915) | 0.127 | 25 | −0.0192 (−1.021) | 0.614 | −0.0140 (−0.670) | 0.549 | 25 |
Env. minus LR | −0.0479* (−1.864) | 0.113 | −0.0462 (−1.656) | 0.115 | 25 | −0.0136 (−0.657) | 0.574 | −0.00745 (−0.356) | 0.643 | 25 |
Sector-based screens | ||||||||||
Weap. minus Tob. | – | – | – | – | – | – | – | – | – | – |
GPFG | ||||||||||
Norm-based screens | ||||||||||
HR minus LR | – | – | – | – | – | – | – | – | – | – |
Env. minus HR | −0.0106 (−1.237) | 0.159 | −0.0127 (−1.386) | 0.319 | 113 | −0.0109 (−1.457) | 0.304 | −0.0119 (−1.448) | 0.416 | 113 |
Env. minus LR | – | – | – | – | – | – | – | – | – | – |
Sector-based screens | ||||||||||
Weap. minus Tob. | −0.00222 (−0.470) | 0.0599 | −0.000187 (−0.035) | 0.0141 | 70 | −0.00260 (−0.448) | 0.0833 | −0.000422 (−0.067) | 0.0400 | 70 |
Industry-Specific Risk Factors
Controversial weapons | Tobacco | |||||||
---|---|---|---|---|---|---|---|---|
AP7 | AP1–4 | GPFG | GPFG | |||||
Equal-weight (1) | Value-weight (2) | Equal-weight (3) | Value-weight (4) | Equal-weight (5) | Value-weight (6) | Equal-weight (7) | Value-weight (8) | |
Alpha | −0.000691 (−0.119) | −0.00321 (−0.547) | 0.00276 (0.871) | −0.00163 (−0.639) | 0.00248 (0.816) | 0.00280 (0.989) |
0.00322* (1.677) | 0.000287 (0.403) |
MSCIall industries
| 1.619*** (6.528) | 1.771*** (7.288) | 1.366*** (15.246) | 1.316*** (18.457) | 1.108*** (15.389) | 1.132*** (16.946) | 1.616*** (15.843) | 1.957*** (42.177) |
SMBall industries
| −0.0428 (−0.058) | −0.178 (−0.239) | 0.900* (1.761) | −0.205 (−0.598) | 0.746* (1.789) | 0.271 (0.749) | 0.870*** (3.042) | 0.365*** (2.786) |
HMLall industries
| 0.359 (0.478) | 0.137 (0.177) | −0.380 (−0.900) | −0.404 (−1.018) | −1.031** (−2.376) | −0.742* (−1.893) | −0.852** (−2.024) | −0.200 (−1.342) |
WMLall industries
| −0.605** (−2.327) | −0.444* (−1.682) | −0.183 (−1.158) | −0.0588 (−0.598) | 0.00899 (0.082) | 0.0863 (1.023) | −0.198 (−1.547) | −0.0281 (−0.600) |
Ortho. MSCIaerospace
| −0.946** (−2.226) | −1.050** (−2.459) | −0.775*** (−3.894) | −1.316*** (−10.046) | −0.692*** (−4.644) | −0.971*** (−6.651) | ||
Ortho. SMBindustrials
| 0.579 (1.078) | 0.688 (1.240) | −0.196 (−0.384) | 0.420 (1.221) | −0.324 (−0.740) | −0.236 (−0.650) | ||
Ortho. HMLindustrials
| −1.445 (−1.557) | −1.298 (−1.363) | 0.440 (0.849) | 0.312 (0.778) | 1.395*** (2.937) | 0.955** (2.231) | ||
Ortho. WMLindustrials
| 0.177 (0.588) | 0.166 (0.550) | 0.0512 (0.318) | 0.139 (1.037) | −0.00696 (−0.048) | 0.0263 (0.209) | ||
Ortho. MSCItobacco
| −1.305*** (−8.106) | −1.902*** (−28.559) | ||||||
Ortho. SMBconsumer staples
| −0.433 (−1.392) | −0.189 (−1.512) | ||||||
Ortho. HMLconsumer staples
| 1.020** (2.277) | 0.316 (1.557) | ||||||
Ortho. WMLconsumer staples
| −0.0547 (−0.383) | −0.0656 (−0.948) | ||||||
Observations | 166 | 166 | 94 | 94 | 162 | 162 | 70 | 70 |
R
2
| 0.547 | 0.556 | 0.850 | 0.863 | 0.712 | 0.712 | 0.893 | 0.980 |
Adj. R
2
| 0.524 | 0.533 | 0.836 | 0.851 | 0.697 | 0.697 | 0.880 | 0.978 |
Sub-Sample Analysis
Panel A: CAPM model | Panel B: four-factor model | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Equal weighted | Value weighted | Equal weighted | Value weighted | |||||||
Alpha | Adj. R
2
| Alpha | Adj. R
2
| Obs. | Alpha | Adj. R
2
| Alpha | Adj. R
2
| Obs. | |
AP7 | ||||||||||
All exclusions | 0.00269 (1.319) | 0.901 |
0.00341* (1.874) | 0.849 | 93 | 0.00291 (1.500) | 0.912 |
0.00341* (1.927) | 0.867 | 93 |
Human rights issues | −0.00106 (−0.331) | 0.805 | −0.00229 (−0.700) | 0.610 | 93 | −0.000461 (−0.151) | 0.825 | −0.00211 (−0.664) | 0.636 | 93 |
Labour rights issues |
0.00681** (2.115) | 0.695 | 0.00464 (1.497) | 0.484 | 93 |
0.00646* (1.964) | 0.699 |
0.00467* (1.680) | 0.592 | 93 |
Environmental issues | −0.00364 (−0.847) | 0.648 | −0.00307 (−0.806) | 0.587 | 93 | −0.00375 (−0.866) | 0.650 | −0.00333 (−0.883) | 0.590 | 93 |
Controversial weapons | 0.00256 (0.901) | 0.838 | −0.000404 (−0.124) | 0.818 | 93 | 0.00291 (1.051) | 0.847 | −0.000534 (−0.159) | 0.813 | 93 |
Tobacco | – | – | – | – | – | – | – | – | – | – |
AP1–4 | ||||||||||
All exclusions |
0.00588* (1.815) | 0.774 | 0.00468 (1.458) | 0.448 | 93 |
0.00658** (2.172) | 0.808 |
0.00528* (1.790) | 0.557 | 93 |
Human rights issues | −0.00145 (−0.287) | 0.487 | −0.00297 (−0.572) | 0.473 | 85 | −0.00119 (−0.248) | 0.498 | −0.00236 (−0.477) | 0.483 | 85 |
Labour rights issues | 0.00490 (1.032) | 0.357 | 0.00441 (1.005) | 0.175 | 93 | 0.00567 (1.238) | 0.403 | 0.00490 (1.260) | 0.353 | 93 |
Environmental issues | −0.0500* (−1.976) | 0.249 | −0.0506* (−1.992) | 0.250 | 25 | −0.0135 (−0.794) | 0.695 | −0.0137 (−0.806) | 0.697 | 25 |
Controversial weapons | 0.00479 (1.305) | 0.770 | 0.00283 (0.741) | 0.645 | 93 | 0.00510 (1.491) | 0.792 | 0.00314 (0.822) | 0.636 | 93 |
Tobacco | – | – | – | – | – | – | – | – | – | – |
GPFG | ||||||||||
All exclusions | 0.00326 (1.405) | 0.881 | 0.00244 (1.341) | 0.875 | 93 |
0.00335* (1.701) | 0.907 | 0.00239 (1.406) | 0.896 | 93 |
Human rights issues | 0.00763 (1.490) | 0.519 | 0.00367 (0.880) | 0.212 | 93 |
0.00875* (1.729) | 0.546 | 0.00420 (1.132) | 0.374 | 93 |
Labour rights issues | – | – | – | – | – | – | – | – | – | – |
Environmental issues | −0.00784 (−1.078) | 0.618 | −0.0153* (−1.891) | 0.565 | 93 | −0.00904 (−1.376) | 0.682 | −0.0167** (−2.177) | 0.594 | 93 |
Controversial weapons | 0.00430 (1.438) | 0.793 |
0.00544* (1.674) | 0.724 | 93 | 0.00473 (1.648) | 0.806 |
0.00588* (1.820) | 0.724 | 93 |
Tobacco |
0.00718** (2.309) | 0.591 |
0.00833** (2.169) | 0.461 | 70 |
0.00746* (1.948) | 0.608 | 0.00679 (1.598) | 0.553 | 70 |
Risk Comparison
MSCI | GFPG | AP7 | AP1–4 | |
---|---|---|---|---|
Panel A
| ||||
Standard deviation | 0.0088 (0.0055) | 0.0105 (0.0056) | 0.0093 (0.0055) | 0.0096 (0.0053) |
Semi standard deviation | 0.0062 (0.0039) | 0.0073 (0.0042) | 0.0065 (0.0040) | 0.0067 (0.0039) |
LPM3 (\(\bar{r}_{p}\) as min. acc. return) | 0.0000 (0.0000) | 0.0000 (0.0001) | 0.0000 (0.0000) | 0.0000 (0.0000) |
LPM3 (0 as min. acc. return) | 0.0000 (0.0000) | 0.0000 (0.0001) | 0.0000 (0.0000) | 0.0000 (0.0000) |
Minimum return | −0.0175 (0.0124) | −0.0213 (0.0135) | −0.0183 (0.0108) | −0.0195 (0.0124) |
Difference between MSCI and… | ||||
---|---|---|---|---|
GPFG | AP7 | AP1–4 | ||
Panel B
| ||||
Standard deviation | −0.0017*** (−5.9022) | −0.0005*** (−3.7693) | −0.0002 (−0.6570) | |
Semi standard deviation | −0.0011*** (−4.4803) | −0.0002 (−1.5690) | 0.00003 (0.1254) | |
LPM3 (\(\bar{r}_{p}\) as min. acc. return) | −0.000001* (−1.6752) | 0.0000 (−0.6526) | 0.0000 (0.0444) | |
LPM3 (0 as min. acc. return) | 0.000000 (−1.1054) | 0.00000 (0.2371) | 0.000001 (1.6091) | |
Minimum return | 0.0038*** (3.3318) | 0.0008 (1.0965) | −0.0001 (−0.1262) |