The stock market and corporate consequences of ethical exclusions by the world's largest fund

Erika Berle, Wanwei (Angela) He and Bernt Arne Ødegaard

Feb 2025

Forthcoming in Journal of International Financial Markets, Institutions and Money

We investigate the stock market and corporate consequences of ethically motivated portfolio exclusions. The divestments by Norway's "Oil Fund," the world's largest SWF, provide a sample of stocks facing widespread exclusions by institutional investors. We estimate a return premium (alpha) of about 5\% for this "unethical portfolio." We also consider firms where the oil funds' exclusion has been reversed. For this portfolio of "newly ethical firms" we do not find a return premium going forward. We investigate to what extent these results can be directly linked to the Oil Fund's actions. We do not find evidence of a causal link. We investigate the corporate reactions to exclusions. Only 14% of the excluded firms make sufficient changes to their operations for the exclusions to be revoked.

Keywords: ESG; Ethical investing; Exclusion; Cost of Capital

JEL Codes: G10; G11; G20

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Summarizing paper

A4 Poster (one page summary)
A4 Poster (in Norwegian) (Norsk en-sides oppsummmering)

Presenting paper

talk at University of Stockholm, March 2025
talk at World Finance Conference, Kristiansand, Aug 2023
talk at Hanken Conference, Finland, Aug 2023
talk at FMA, Aarhus, June 2023
talk at Norways ministry of Finance

Replication package (code and data) - Incomplete

The paper at SSRN