September 27, 2005

2005 Moskowitz Prize Winner

I had the pleasure last night of presenting the 2005 Moskowitz Prize to Nadja Guenster of Erasmus University in the Netherlands, who accepted on behalf of her three co-authors. (Official announcement is here.) Nadja gave a great presentation on the study this morning at the SRI in the Rockies conference in Snowbird, Utah. Here is my abstract of the study, and the full text is available here. If you are interested in the financial impact of environmental and sustainability practices, I think it is fair to say that this is a must-read. We have seen several studies showing environmental alpha in recent years, most recently Derwall(2005). But until now no one had really explained how or why this was happening. Nadja's piece is careful, thorough, and full of good judgments about methodology and data. Congratulations also to Meir Statman, who received an Honorable Mention for his article on socially responsible indexes. Meir is having a good year, as he also is headlining the just-released Journal of Investing special issue with a different piece on SRI.


Blogger Jeff MacDonagh said...

I am very curious if these results hold for other data sets, for example, KLD's social data.

On an unrelated note, I remember a study looking at KLD ratings and showing that it was a "good" data set. Has anyone done this for Innovest ratings? I am trying to see how/why we can't use this study more broadly to boast the efficacy of using environmental data in securities analysis. The quality of data/ratings seems like it could be an Achilles heel.

1:44 PM  
Blogger Lloyd Kurtz said...

There have been other studies, but most were inconclusive. Diltz (1995) found a positive correlation between returns and the Council on Economic Priorities' environmental ratings. But Dhrymes (1998) didn't find much in the KLD data. (Full citations, along with very brief abstracts of both studies are at

Anecdotally, I knew a hedge fund guy in the 90s who thought there was something in the KLD environmental data.

But there have been several other studies pointing in this direction. Repetto and Austin (2000) found significant potential financial impacts in the pulp and paper industry. And Dowell, Hart, and Yeng (2000) were able to show that stated environmental policies mattered for price/book ratios.

I really like Nadja's study because it goes very deep into the 'why', and looks at both fundamental performance (ROA) and valuation (Tobin's Q). It really sets a new bar - I don't think it's enough anymore to run some numbers and show a variable was impactful (or not) over a certain time period. Today I think you also have to explain how it's happening.

4:29 PM  

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