An ethical investment parable

Two keen bargain hunters go out to get some good deals. Shopper A decides to only look in John Lewis.  Shopper B is less particular: he'll look in Lewis', of course – also anywhere else he might get some better deals.  When they get home their partners want to know how well they've done.  Of course they assume Shopper B must have done better – since he looked at the best deals in Lewis' and everywhere else, wheras Shopper A only looked in Lewis'.  Surely the result is a foregone conclusion...

Yet strangely enough when they look at the actual goods bought there doesn't seem to be a great deal of difference in the deals each has got – in fact if anything it is Shopper A who has done best.

How can this be?

A passing economist doesn't seem surprised: “It seems that restricting shopping to John Lewis may not result in any statistically significant bargains.”

Reading research on the results of ethical investment is a bit like this.   Late last year for example Emma Sjöström published a review of recent academic studies, which concluded that of 21 published research papers...

… 7 studies conclude that Socially Responsible Investments have similar performance relative to their conventional peers; 5 studies report that Socially Responsible Investment outperforms conventional investment; 3 studies find that Socially Responsible Investment generates inferior performance relative to its conventional peers; and 6 studies report mixed results.

We can conclude that results point in all different directions, and that there is no clear link between Socially Responsible Investment and financial performance. Our results implicate that it would be unwise to make general statements about the performance of Socially Responsible Investment based on only one or a few studies.*

Are they kidding? Isn't it actually astonishing that ethical investors, who restrict their shopping to just a part of the possible market, can get anywhere near – let alone match or actually surpass - the financial performace of investors who are just looking for financial performance?

What's going on here? Are ethical investors just cleverer than the others? And why don't the others just get ethical - and make more money?

*  Sjöström, Emma, The Performance of Socially Responsible Investment - A Review of Scholarly Studies Published 2008-2010 (October 17, 2011).  Available at SSRN: http://ssrn.com/abstract=1948169 or doi:10.2139/ssrn.1948169