The Network of Socially Responsible Investments.

Socially responsible investments (SRIs) are the core engine for a sustainable economic growth. Despite the rapid expansion of the SRI market, its impact on financial contagion has never been investigated. We estimate the volatility network of the companies in the STOXX Europe 50 exploiting the non-paranormal SKEPTIC methodology and distinguish firms commitment to SRIs according to the Environmental Score (E) metric. To account for the impact of such macroeconomic variable on the volatility of stock returns, we estimate GARCH-MIDAS models. Our analysis highlights that systemic risk is more likely to propagate through volatility connections rather than returns. However, the lower volatility and higher connectedness of responsible firms relative to less responsible companies reveals that SRIs may serve as a cushionagainst systemic risk exposure and increase the resilience of the financial stability. Network augmented with principal component analysis shows that less responsible firms increase the disaggregation of the volatility connectedness thus providing a significant contribution to explain the remaining variability of the volatility of responsible firms.