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

Feb 2025

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

Paper

• Paper
• Paper Appendix

• A4 Poster (one page summary)

• talk at World Finance Conference, Kristiansand, Aug 2023
• talk at Hanken Conference, Finland, Aug 2023 (Bernt Arne Ødegaard)
• talk at FMA, Aarhus, June 2023 (Bernt Arne Ødegaard)
• talk at Norways ministry of Finance (Bernt Arne Ødegaard)

The paper at SSRN