The article "The Eco-Efficiency Premium Puzzle" by Derwall, Günster, Bauer, and Koedijk explores whether socially responsible investing (SRI) leads to superior or inferior portfolio performance. The study focuses on the concept of "eco-efficiency," which measures a company's economic value relative to the waste it generates. Using Innovest Strategic Value Advisors' corporate eco-efficiency scores, the authors constructed and evaluated two equity portfolios with different eco-efficiency rankings. The high-ranked portfolio outperformed the low-ranked portfolio significantly over the 1995-2003 period, with the difference in average returns being substantial and statistically significant. This performance differential could not be explained by differences in market sensitivity, investment style, or industry-specific factors. The results remained significant even when transaction costs were considered, suggesting that the incremental benefits of SRI can be substantial. The study concludes that environmentally responsible investing can provide substantial benefits, but the nature of the eco-efficiency premium remains a puzzle, possibly due to mispricing or latent risk factors.The article "The Eco-Efficiency Premium Puzzle" by Derwall, Günster, Bauer, and Koedijk explores whether socially responsible investing (SRI) leads to superior or inferior portfolio performance. The study focuses on the concept of "eco-efficiency," which measures a company's economic value relative to the waste it generates. Using Innovest Strategic Value Advisors' corporate eco-efficiency scores, the authors constructed and evaluated two equity portfolios with different eco-efficiency rankings. The high-ranked portfolio outperformed the low-ranked portfolio significantly over the 1995-2003 period, with the difference in average returns being substantial and statistically significant. This performance differential could not be explained by differences in market sensitivity, investment style, or industry-specific factors. The results remained significant even when transaction costs were considered, suggesting that the incremental benefits of SRI can be substantial. The study concludes that environmentally responsible investing can provide substantial benefits, but the nature of the eco-efficiency premium remains a puzzle, possibly due to mispricing or latent risk factors.