October 03, 2011
Winner of 2011 Moskowitz Prize for Socially Responsible Investing is Announced
by Robert Kropp
The winning paper, announced tonight at SRI in the Rockies, finds that cost of equity capital is
lowered for companies with good corporate social responsibility practices.
Every year since 1996, the Moskowitz Prize for Socially Responsible Investing, awarded for
outstanding quantitative research in sustainable investing, is announced at the annual SRI in the Rockies conference,
held this year in New Orleans.
In announcing this year's winner
earlier this evening, Lloyd Kurtz, the Program Administrator of the Prize, reflected on the rarity
of such research in the field when the Prize was first awarded 15 years ago, and on how the quality
of the research of the submissions has improved since then.
"There was no evidence then.
It was like the worst features of everyone run amuck," Kurtz said. "Over here, Milton Friedman;
over here, Ben and Jerry's. Go," he said to the laughter of the 500 or so in attendance.
Turning serious, Kurtz continued, "The Prize is not about what we would like to be true, or
what we hope is true. It's about what's going on. It is about saying something meaningful, based on
the facts, to help us become better practitioners of social investing. The Prize is intended to
recognize good, factual, empirical work that will help us better understand what we do."
Before announcing the 2011 winner, Kurtz commended two Honorable Mentions: Environmental
Externalities and Cost of Capital, by Sudheer Chava; and Do Corporations Invest Enough in
Environmental Responsibility?, by Yongtae Kim and Meir Statman.
Referring to the quality
of the two runners up, Kurtz said, "This year's winner surmounted a very high hurdle because this
was the most competitive field we have ever seen."
The winner of the 2011 Moskowitz Prize
was a paper entitled Does corporate
social responsibility affect the cost of capital? by Sadok El Ghoul, Omrane Guedhami, Chuck C.
Y. Kwok, and Dev R. Mishra.
Stating that "The substantial rise of CSR practices has
recently fuelled research on the relationship between CSR and financial performance," the authors
use data on US firms compiled by the former KLD Research & Analytics (now part of MSCI), and
determine that companies with better CSR scores have lower costs of equity capital, or the return
required by a company's shareowners. Costs become significantly lower when CSR efforts are focused
on employee relations, environmental policies, and product strategies.
industries normally shunned by sustainable investors—tobacco and nuclear power—were found to have
higher equity financing costs.
"The cost of capital could be the channel through which
capital markets encourage firms to become more socially responsible," the authors conclude.
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