A comparative analysis of the absolute risk-adjusted performance of South Africa’s SRI funds before and during the COVID-19 pandemic

Socially Responsible Investing (SRI) is an investment strategy developed to minimize the negative socio-economic and environmental impacts of each financial investment. Inconsistent results are presented during the analysis of the absolute risk-adjusted returns of SRI funds in comparison to conventional funds, and this negatively impacts investor awareness on adopting SRI funds as a viable substitute to conventional funds during economic crises. This research paper aims to improve SRI in South Africa by increasing the awareness of investors on viable investment substitutes, considering the amendments made to regulation 28 of the Pension Fund Act of 1956. These regulatory changes have made provisions to include principles of SRI into South African retirement fund investments and will increase the demand for SRI products in South Africa. The research objective is to provide empirical evidence on the absolute risk-adjusted performance of SRI funds relative to the performance of a matched set of conventional funds, before and during an economic crisis. The results are obtained by comparing the Sharpe ratio and Coefficient of Variation (CV) of each SRI fund to each matched conventional fund. The comparative analysis using the Sharpe ratio reveals that more sampled SRI funds (60%) outperform the sampled matched conventional funds (40%) before the COVID-19 pandemic. More Sample SRI funds (70%) outperform the sampled matched conventional funds (30%) during the COVID-19 pandemic. On an absolute RA basis, using the CV to compare SRI fund performance to conventional fund performance, the sampled SRI funds (50%) and the sampled matched conventional funds (50%) equally outperform one another before the COVID-19 pandemic however, more sampled SRI funds (60%) outperform the sampled matched conventional funds (40%) during the COVID-19 pandemic. The results indicate that SRI funds can match and outperform conventional funds both before and during an economic crisis period and should be considered as a viable investment substitute.