Eccles, Rajgopal, and Xie discovered that, compared to non-sin stocks of businesses with comparable fundamentals, negative screening for sin stocks has no impact on the firms’ valuations, stock prices, exits, and returns.
“In sum, we argue that claims that negative screening hurts sin stocks are somewhat overstated,” the trio wrote. “The underlying empirical reality, at least since 2000, is more nuanced and complicated and depends on the research design used.”
In negative screening, investors exclude equities from their portfolio that they believe to be unethical or unsustainable considering governance, social, or environmental considerations.
As an example, many institutional investors search for “sin stocks”—stocks of businesses that make goods that are damaging for both people and the environment, such as those associated with alcohol, cigarettes, gaming, and, more recently, fossil fuels.
Certain industries have been avoided by institutions for a long time, resulting in lower stock holdings in these businesses.
