Corporate culture, strength, cohesion, alignment, and ethics
Can you beat the market by filtering out 'bad actors'? Data from Stewardship Partners and the Biblically Responsible Investing Institute (BRII) suggests yes. In a long-term backtest (spanning nearly 20 years), a portfolio constructed by screening out companies with significant ethical violations (human rights abuses, pornography, abortifacients) did not just match the benchmark—it beat it. The screened portfolio delivered an annualized return approximately **260 basis points (2.6%)** higher than the broad market (S&P 500), with lower volatility.
https://www.stewardshippartners.com/backtest.pdfWe view ethical screening as a form of 'Tail Risk Hedging.' Companies that engage in ethically dubious activities (fraud, exploitation, vice) carry a hidden 'Moral Liability' on their balance sheet. This liability often explodes in the form of lawsuits, regulation, or consumer boycotts. By screening these out, we aren't just being 'good'; we are systematically removing the left-tail crash risk from the portfolio, which mathematically lifts the long-term average return.
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