Corporate culture, strength, cohesion, alignment, and ethics
Can values-based screening actually beat the market? Inspire Investing tested their "Inspire Impact Score"—a methodology that screens out "bad actors" (violations of values) and screens in "positive actors" (clean supply chains, community impact). The backtest data indicated that high-Impact-Score portfolios have the potential to generate **Alpha** (excess returns) relative to the broad market. This challenges the assumption that ethical constraints reduce the opportunity set; instead, they appear to filter out "Quality Risks" that drag down returns.
https://www.inspireinvesting.com/post/performance-attribution-of-the-first-biblically-based-sri-index#:~:text=These%20three%20variables%20were%20then,the%20non%2Dscreened%20benchmark.%E2%80%9DWe treat "Values Alignment" as a quality filter. Companies that violate core ethical norms often carry hidden "tail risks" (lawsuits, boycotts, regulatory crackdowns). By filtering these out, we aren't just being moral; we are mechanically removing the left-tail risk from the portfolio. This naturally lifts the average return. We view ethics as a structural hedge against catastrophic loss.
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