Socially Responsible Investment

Socially Responsible Investment (SRI) indices play a major role in the stock markets. A connection between doing good and doing well in business is implied. Leading indices, such as the Domini Social Index and others, exemplify the movement toward investing in socially responsible corporations. However, the question remains: Does the ratings-based methodology for assessing corporate social responsibility (CSR) provide an incentive to firms excluded from SRI indices to invest in CSR? Not in its current format. The ratings-based methodology employed by (...) SRI indices in their selection processes excludes many corporations by creating limited-membership lists. This received ratings-based structure is yet to offer an incentive for most of the excluded corporations to invest in improving their levels of CSR. We, therefore, ask under what circumstances a ratings-based method for assessing CSR could provide an incentive to firms excluded from SRI indices to invest in CSR. In this article, we attempt to offer a theoretical reply to this question. We show that when all firms are publicly ranked according to SRI index parameters, such indices can indeed create a market incentive for increased investment by firms in improving their performance in the area of social responsibility. We further show that this incentive tapers off as the amount of investment required exceeds a certain point or if the amount of payback on that investment fails to reach a certain threshold. (shrink)

The main objective of this piece of work is to reflect upon the evolution of the socially responsible mutual funds industry in Europe over the recent years. In order to do this, we shall analyse the evolution of the number of ethical funds offered, the growth of its assets, its size, the typology of commercialised funds, and the main companies included in its investment portfolios, showing the importance that socially responsible mutual funds are gaining in Europe over these first few (...) years of the 21st century. (shrink)

Although the academic interest in ethical mutual fund performance has developed steadily, the evidence to date is mainly sample-specific. To tackle this critique, new research should extend to unexplored countries. Using this as a motivation, we examine the performance and risk sensitivities of Canadian ethical mutual funds vis-à-vis their conventional peers. In order to overcome the methodological deficiencies most prior papers suffered from, we use performance measurement approaches in the spirit of Carhart (1997, Journal of Finance 52(1): 57–82) and Ferson (...) and Schadt (1996, Journal of Finance 51(2): 425–461). In doing so, we investigate the aggregated performance and investment style of ethical and conventional mutual funds and allow for time variation in the funds’ systematic risk. Our␣Canadian evidence supports the conjecture that any␣performance differential between ethical mutual funds and their conventional peers is statistically insignificant. (shrink)

(2001). A responsible investment?—an overview of the socially responsible investment community. World Futures: Vol. 56, Values, Ethics and Econmics, Part II, pp. 409-416.

This article contributes to the literature on national varieties of socially responsible investment (SRI) by demonstrating how Scandinavian SRI developed from the 60s and onwards. Combining findings on Scandinavian SRI with insights from previous research and institutional theory, the article accounts for the role of changes in societal values and norms, the mechanisms by which SRI practices spread, and how investors adopt and transform practices to suit their surrounding institutional contexts. Especially, the article draws attention to how different categories of (...) investors act as institutional entrepreneurs during specific historical periods, and how these roles come to shift as institutional rule systems of varying societal levels change. Thus, the insights gained are useful in the future research agenda concerned with advancing knowledge on idiosyncrasies and commonalities of national SRI manifestations, and to understand the reasons underlying such characteristics. (shrink)

The increasing popularity of socially responsible investment among individual investors throughout Europe reveals the need for a framework that allows the comparison of socially responsible retail markets in different European countries. This article proposes such a framework, containing 16 different characteristics of socially responsible retail markets describing the size, institutionalization and nature of this market and correcting for differences in the size of countries and financial markets. When this framework was applied to the Dutch and Belgian socially responsible retail markets, (...) differences were found with respect to the nature of both markets (specifically the use of non-financial criteria, the asset allocation, the number of solidarity funds and investors' preferences for socially responsible savings products). Similarities were found with respect to the (absolute and relative) size and the degree of institutionalization of the socially responsible retail markets. (shrink)

To date, research into socially responsible investment (SRI), and in particular the socially responsible investment funds industry, has focused on whether investing in SRI assets has any differential impact on investor returns. Prior findings generally suggest that, on a risk-adjusted basis, there is no difference in performance between SRI and conventional funds. This result has led to questions about whether SRI funds are really any different from conventional funds. This paper examines whether the portfolio allocation across industry sectors and the (...) stock-picking ability of SRI managers are different when compared to conventional fund managers. The study finds that SRI funds exhibit different industry betas consistent with different portfolio positions, but that these differences vary from year to year. It is also found that there is little difference in stock-picking ability between the two groups of fund managers. (shrink)

This paper divides firms in the Standard and Poor’s 500 (S&P 500) into two groups based on inclusion in or exclusion from the Domini Social Index (DSI). Inclusion in the DSI is interpreted as a positive indicator of ethical status. Using data for the 1992–2003 period, I provide evidence that chief executive officer (CEO) compensation, other executive compensation, and director compensation tend to be lower in DSI firms than in other firms in the S&P 500. This applies to the unconditional (...) group averages (and medians) and is particularly striking given that DSI firms as a group had better financial performance than the other firms. This finding is also true in a regression framework that controls for other influences on compensation, including firm size and financial performance. In a regression context, the estimated discount for CEOs of DSI firms is approximately 12% for both current compensation (salary and bonuses) and total compensation (including the value of options). These results are consistent with the expectation that some senior executives require a “compensating differential” to accept positions in firms with less attractive ethical status. It is also consistent with the expectation that some firms with positive ethical status might use more restraint in setting executive compensation. (shrink)

For more than 15 years, the investment community and the academic community have written extensively on socially responsible investment . Despite the abundance of SRI thought, the adoption of SRI practices among institutional investors is a comparative rarity. This paper endeavours to achieve two goals. First, by integrating the practitioner and academic literature on the topic, the paper attempts to identify the many impediments to SRI in Europe from an institutional investor's perspective. Second, the paper proposes a unitary framework to (...) conceptually organize the impediments to SRI by using insights from different relevant research perspectives: behavioural finance, organizational behaviour, institutional theory, economic sociology, management science and finance. The paper concludes by presenting the main shortcomings within both the academic and the practitioner literature on SRI and by providing conceptual and methodological recommendations for further research. (shrink)

Squeezed between increasing entitlement expenditures and static or declining real revenues, state-funded urban development is increasingly perceived as an unaffordable luxury. At the same time, the power and significance of the banking sector is giving way to new kinds of financial institutions that have little or no interest in community development. Not surprisingly, it is often argued that pension funds ought to be more sensitive to community needs. However, some analysts argue that pension funds are properly only the agents of (...) plan beneficiaries; any investment that took into account community needs would be, in effect, an unjustified tax on individuals' future welfare. Furthermore, analysts are very doubtful about the integrity of public pension plan investment decision-making. In this paper, I set out a morally informed justification of public pension plan investment in community development. In doing so, I develop a model of community development that stresses the reciprocal nature of the obligations embedded in the relationship between the community and pension plan beneficiaries. This approach also has significant implications for a wide variety of private sponsored plans. The paper begins with an assessment of pension fund decision-making and the practices of the investment management industry, drawing upon related research on pension fund capitalism. It goes on to issues of social obligation, referencing recent research on the nature of social contracts. To give the analysis empirical relevance I refer to the much disputed decision of the West Virginia legislature to require their public pension funds' Investment Management Board to invest in the state government's corrections authority. (shrink)

The purpose of socially responsible investing (SRI) is to: (1) allow investors to reflect their personal values and ethics in their choices, and (2) encourage companies to improve their ethical, social, and environmental performance. In order to achieve these ends, the means SRI fund managers employ include the use of negative screening, or the exclusion of companies involved in "sinful" industries. We argue that there are problems with this methodology, both at a theoretical and at a practical level. As a (...) consequence, current SRI offerings cannot accurately reflect the values and ethical beliefs they propose to represent. Moreover, the use of a priori criteria is potentially misleading, as we show by discussing examples of glue and wine making. Applying this flawed approach SRI funds fail to influence the direction of the firms they deem most in need of redirecting. Rather than engaging in the simple a priori assumption that some industries are "saints" while others are "sinners" (Freeman, 2007) we suggest a new framework upon which the SRI screening methodology could be grounded. Embracing the philosophical tradition of American pragmatism, we suggest that SRI methodology could be improved by engaging in an analysis based on (1) the actual impacts of the company's products and services, (2) the company's relationships with its specific, real stakeholders, and (3) the contingent environment (social, economic, political, legal, and cultural) in which the business operates. (shrink)

Recent years have witnessed an increasing growth in mutual funds that invest according to social criteria. As a consequence, the financial performance of these portfolios has attracted the interest of academics and practitioners. This paper investigates the performance of a sample of socially responsible mutual funds from seven European countries investing globally and/or in the European market. Using unconditional and conditional models, we assess the performance of these funds in comparison to conventional and socially responsible benchmark portfolios. The results show (...) that European socially responsible funds present in general neutral performance in relation to both conventional and socially responsible benchmarks. However, performance estimates seem to be slightly higher when funds are evaluated in relation to socially responsible indices. Our results also show that socially responsible funds are more exposed to conventional than to socially responsible indices. Furthermore, conventional benchmarks are better able to explain fund returns than socially responsible benchmarks. These findings are robust to both unconditional and conditional models of performance. We also observe that conditional models lead to a slight improvement of performance estimates and to the explanatory power of the models, both when conventional and socially responsible benchmarks are considered. This is consistent with most previous empirical findings on conditional performance evaluation. Our results show that investors who wish to hold European funds can add social screens to their investment choices without compromising financial performance. (shrink)

Although ethical investment is a growing phenonenon which attracts a signficant amount of media interest, relatively little has been written about the internal operations of ethical investment funds. Using a variety of sources, including interviews with a fund manager and participant observation at meetings of the fund’s ethical advisory committee, this paper examines the decision making of one ethical unit trust operating in the United Kingdom. In particular, it describes the development of the ethical criteria and the ways in which (...) their implementation was monitored. Several significant parallels between publicly stated ethical investment criteria and corporate codes of ethics are then discusssed. (shrink)

Socially responsible investment (SRI) – sometimes termed “ethical investment” – refers to the practice of integrating social, environmental, or ethical criteria into financial investment decisions. Whereas conventional investment focuses upon financial risk and return from stocks and bonds, SRI includes other goals or constraints. It is the nature of the source, and not just the size, of the financial return that is of concern in SRI. This article introduces the principal investment strategies generally pursued under SRI, and then focuses specifically (...) on the ethical dimension – that is, whether current SRI practices constitute an ethically justified, perhaps even ethically superior, way of investing. (shrink)

This study investigates the pattern of institutional shareholding in the U.K. and its relationship with socially responsible behavior by companies within a sample of over 500 UK companies. We estimate a set of ownership models that distinguish between long- and short-term investors and their largest components and which incorporate both aggregated and disaggregated measures of corporate social performance (CSP). The results suggest that long-term institutional investment is positively related to CSP providing further support for earlier studies by Johnson and Greening (...) (1999, Academy of Management Journal 42, 564–576) and Graves and Waddock (1994, Academy of Management Journal 37, 1034–1046). Disaggregation of CSP into its constituent components suggests that the pattern of institutional investment is also related to the form which CSP takes. Investigation of the impact of investment screens on the selection of stocks suggests that long-term institutional investors select primarily through exclusion, rejecting those firms which have the worst CSP. (shrink)

This article studies institutional investor allocations to the socially responsible asset class. We propose two elements influence socially responsible institutional investment in private equity: internal organizational structure, and internationalization. We study socially responsible investments from Dutch institutional investments into private equity funds, and compare socially responsible investment across different asset classes and different types of institutional investors (banks, insurance companies, and pension funds). The data indicate socially responsible investment in private equity is 40–50% more common when the decision to implement (...) such an investment plan is centralised with a single chief investment officer. Socially responsible investment in private equity is also more common among institutional investors with a greater international investment focus, and less common among fund-of-fund private equity investments. (shrink)

The socially responsible investment industry is slowly changing from a screening, avoidance paradigm to a comprehensive paradigm that seeks to affect corporate behavior. Credible rating systems are a key component of this sea change. Reliable and recognizable social and environmental metrics are critical to this progress. The Total Social Impact rating approach is a new social metric scheme based on a comprehensive rating of stakeholder issues. This paper describes the evolution of SRI ratings and the role that TSI hopes to (...) play in affecting business behavior by promoting principled business leadership. (shrink)

In this paper, we compare and contrast institutional theory and convention theory on the concept of mimetism, suggesting how they can cross-pollinate each other and more specifically how the self-referential quality of collective beliefs improves the understanding of mimetic isomorphism. We test this proposition with the case of responsible investment’s mainstreaming.First level results decompose the history of RI into five successive periods. A content analysis of articles on RI in the financial press leads to second level results consisting in a (...) number of salient representations of RI, which we consider to be the dominant conventions. The data is structured using a bracketing strategy, which allows a longitudinal analysis of conventions and their evolution over the five RI periods. (shrink)

There appears to be a growing disquiet amongst academics surrounding the ascendancy of 'responsible' investment that is egoist or self-interested in character — 'business case' responsible investment. This ascendancy has in no small measure been associated with the uptake of United Nations Principles for Responsible Investment (PRI) as a de facto standard for mainstream responsible investment. This article contributes to this disquiet. It does this by examining how egoist 'responsible' investors (as endorsed by the PRI) might have behaved had they (...) been around in the 1970s, 1980s and early 1990s during days of the anti-apartheid socially responsible investment (SRI) movement. Armed with near perfect (hindsight grade) enhanced analytics, it is clear that the signals that such egoist ' responsible' investors would have sent to company management in terms of the apartheid issue would have been highly muddled and therefore ineffective. The net conclusion is that there is nothing inherently or inevitably ' responsible' about egoist investment and that the aversion to behaving ethically amongst institutional investors must be challenged and not swept under a carpet of rhetoric. (shrink)

There is currently much debate in the economic literature about whether ethical investment involves a financial sacrifice or premium. One of the most common methods of testing this compares the financial performance of ethical investment funds with that of other funds not considered “socially responsible” or ethical. The majority of these research studies evaluate the performance of the ethical funds according to classic measures, whereby different financial markets, in different countries and for different periods of time serve as reference for (...) evaluation. The ultimate conclusion of all of these studies is that there are no significant differences between the performance results of one type of funds and the other. In Spain, ethical investment funds are still an incipient sector of investment. To date, the Spanish market has not been included in any type of analysis of these characteristics. Therefore the main objective of this article is to compare the financial performance of ethical investment funds to that of other funds in the Spanish retail market. We propose the aggregate type of analysis as the Spanish ethical investment funds have experienced a weaker development in comparison to those of other developed countries. In the first step we suggest the financial performance to be compared by style analysis since the asset distribution of the Spanish Social Return Investment (SRI) funds differs from the European trend. In particular, we use the multifactor regression model with style benchmarks. We found that their financial performance is in all cases superior or similar to that achieved by the rest of the funds. In the second step, to achieve a more robust and homogeneous comparison, we used the bootstrap method, comparing ethical and non-ethical fund subsamples by homogeneous groups. No significant differences between these two types of funds have been found. Thus, if we assume the positive o neutral effect of ethical investment on investor utility in the retail Spanish market the financial and social performance (FSP) of ethical funds will be, in aggregate, superior to the FSP achieved by conventional funds. In conclusion, the financial performance of ethical mutual funds in Spain is no sacrifice. (shrink)

In this study, we analyze the financial performance and the managerial abilities of religious mutual fund managers, implementing a comparative analysis with conventional mutual funds. We use a broad sample, free of survivorship bias, of religious equity mutual funds from the US market, for the period from January 1994 to September 2010. We build a matched-pair conventional sample in order to compare the results obtained for both kinds of mutual fund managers. We analyze stock-picking and market timing abilities, topics widely (...) neglected for the specific case of religious mutual fund managers. We also study style timing abilities. As far as we are aware, this aspect has not been studied previously for religious mutual fund managers. Our results indicate that religious mutual fund managers underperform both the market and their conventional counterparts. This result is driven by negative stock-picking ability which could be generated by excluding “Sin” stocks from their portfolios. Moreover, they are not able to time the market or any of the following styles: size, book-to-market, and momentum. (shrink)

As far as we are aware, this study presents the first comparative analysis of the stock picking and market timing abilities of managers of conventional and socially responsible (SR) pension funds, and of their use of superior information. For the United Kingdom, the results obtained show a slight stock picking ability on the part of SR pension fund managers (although it disappears if multifactorial models are considered), and a negative market timing ability on the part of both SR and conventional (...) pension fund managers (these results hold for multifactorial models controlled by home bias). In relation to the management styles, both conventional and SR pension funds usually invest in small cap and growth values, although it is the SR pension funds that are the most exposed to these styles. We also observed that, while conventional pension fund managers make certain use of superior information to follow stock picking strategies, managers of SR pension funds use superior information to follow market timing strategies. (shrink)

There are investors, who out of their concern regarding adverse changes in our environment, concerns for justice, and because of their opposition to the arms race, decline to purchase the securities of enterprises that engage in what are termed socially irresponsible activities. Such activities usually include, but are not necessarily limited to, the production of armaments, alcohol and tobacco; engaging in activities that degrade the environment; and engaging in activities that treat people unfairly. ;Declining to invest in the securities of (...) enterprises that act in a socially irresponsible way not only is a form of social protest, but also can have the effect of diminishing the demand for a company's securities. Diminishment of demand may have an adverse financial impact on a company. This may be a factor in influencing companies to change and to become more socially responsible. ;The question arises: Is an investor who declines to purchase the securities of enterprises deemed to be socially irresponsible at a disadvantage versus investors who have no such restrictions? In other words, has the investment performance of socially responsible investors suffered in comparison to those who are not so responsible? ;To answer the above, a study has been done which encompasses all of the socially responsible mutual funds in the United States. The study covers the ten years through 1990. The investment performance of socially responsible mutual funds has been compared to indices including indices of mutual funds which are not socially responsible. The study shows no clear pattern of either superior or inferior investment rates of return for socially responsible mutual funds as compared to the various indices. The conclusion that can be drawn is that long term investment rates of return are not influenced by use or lack of use of social criteria as part of the investment selection process. (shrink)

In this article, we shed light on the debate about the financial performance of socially responsible investment (SRI) mutual funds by separately analyzing the contributions of before-fee performance and fees to SRI funds' performance, and by investigating the role played by fund management companies in the determination of those variables. We apply the matching estimator methodology to obtain our results and find that in the period 1997–2005, US SRI funds had better beforeand after-fee performance than conventional funds with similar characteristics. (...) The differences, however, are driven exclusively by SRI funds run by management companies specialized in SRI. While these funds significantly outperform similar conventional funds, funds run by companies not specialized in SRI underperform their matched conventional funds. We find no significant differences in fees between SRI and conventional funds except in one case: SRI funds are cheaper than conventional funds run by the same management company. (shrink)

Over the past two decades, the phenomenon of socially responsible investing has become more widespread. However, knowledge about the individual socially responsible investor is largely limited to descriptive and comparative accounts. The question of "why do some investors practice socially responsible investing and others don't?" is therefore still largely unanswered. To address this shortcoming in the current literature, this paper develops a model of the decision to invest socially responsibly that is grounded in the cognition literature. The hypotheses proposed in (...) the model are tested with an experimental survey. The results indicate that the framing of the investing situation influences the likelihood of engagement in socially responsible investing and how much return the individuals are willing to sacrifice when choosing socially responsible over conventional investments. The study does not find support for a relationship between expectations about corporate social responsibility and the likelihood of engagement in socially responsible investing. (shrink)

This paper provides a summary of the symposium on the institutional and social construction of Responsible Investment (RI), held at the 22nd IABS conference. In the context of the symposium, we propose to move beyond the dominant focus on the financial impact of RI to consider the potential of emergent institutional and sociological perspectives to explain the practices and concepts related to RI. In doing so, our aim is to explore in greater detail the current changes in the RI infrastructure (...) and the impact of these changes on wider issues of corporate sustainability and social responsibility. (shrink)

In this article, we document the growing influence of non-governmental organizations (NGOs) in the realm of socially responsible investing (SRI). Drawing from ethical and economic perspectives on stakeholder management and agency theory, we develop a framework to understand how and when NGOs will be most influential in shaping the ethical and social responsibility orientations of business using the emergence of SRI as the primary influencing vehicle. We find that NGOs have opportunities to influence corporate conduct via direct, indirect, and interactive (...) influences on the investment community, and that the overall influence of NGOs as major actors in socially responsible investment is growing, with attendant consequences for corporate strategy, governance, and social performance. (shrink)

Investment products that deploy ethical values and social considerations in portfolio construction have persisted since the 1980s. Pitting Habermasian discourse ethics against Foucauldian power relations and radical institutionalism, the paper argues that socially directed mutual funds ascribe capital markets with validities of high moral magnitude, work up extant tendencies toward financial hegemony and stymie criticism of the political-economic order. Institutional pressures do not permit the exercise of an ethic stronger than an aesthetic care of the self. The balance struck between (...) economic and social priorities is investigated by interviewing investment managers, reviewing archival material and surveying the attitudes of unit holders in retail social mutual funds. (shrink)

Emergent practices of reform-oriented shareholder engagement are characterised as a professional social movement which gains credibility by influencing the institutional networks imbricating investors. The limitations of structuralist and atomistic tendencies in social movement analysis are resolved with an inductive, dialectical approach which is used to illustrate two cases of internal attempts to change investment policy at pension funds. Linkages are identified between organizational responses to pressure for change, and mobilization strategies of embedded proponents of change. The paper urges the involvement (...) of governing boards in vehicles that promulgate reformist engagement, and identifies institutional networks as warranting greater regulatory attention. (shrink)

Objectives of socially responsible investment (SRI) are discussed with reference to the two main mechanisms of the SRI ‘movement’: shareholder advocacy and managed investments. We argue that in their current forms, both mechanisms lack the power to create significant corporate change. Shareholder advocacy has been largely unsuccessful to date. Even if resolutions were successful, shareholder advocacy may still be ineffective if underlying economic opportunities remain. Marketing material and investment prospectuses issued by socially responsible mutual funds (SRI funds) commonly contain the (...) claim that, by affecting corporations' access to capital funding, SRI funds can change corporate practices. This paper makes a contribution by presenting the market share of SRI funds in the regions where they are most developed, being Europe, the U.S. and Australia, to show that this claim is unlikely to eventuate. SRI funds also commonly claim that they will outperform conventional active mutual funds. That the economic performances of both are similar might be explained by their similar portfolio compositions. The paper makes an innovation in the SRI literature by adopting a legitimacy framework to explain the continued presence of SRI funds. To achieve desired social and environmental outcomes, SRI funds are urged to address issues at a more systemic level. A suggested mechanism is the collective lobbying of corporations and, especially, governments. (shrink)

In this article we discuss whether it pays to invest ethically. Our aim is to examine corporate social responsibility from philosophical, moral and practical points of views. We focus on two main issues related to ethical investments. Firstly we discuss the moral dilemma of how capitalism has changed its shape in today's world and from 'blaming the business' there is a general attempt to use the markets to promote ethics values and corporate social responsibility. Secondly, we analyze the growth of (...) ethical investment funds in the UK today, and their performance, and highlight some of the institutional investors involved in the management of ethical funds. We discuss whether ethical investments really succeed in reducing the conflict between profit-making and social responsibility as they promise or whether they use commercial rhetoric and market mechanism to merely sell us our own perceived values back. We conclude that the paper has a key contribution in setting the scene for future research in an area that is evolving and of fundamental importance to companies, investors and various stakeholder groups. (shrink)

Based on an inductive study we analyse the role of the investor relations (IR) function in the light of rising investor concern about corporate social responsibility (CSR). The study draws on interviews with IR professionals in twenty firms. It highlights their awareness of CSR issues as well as their assessment of concern among mainstream investors and socially responsible investors (SRIs). From these findings we develop suggestions on how the IR function is moving from a mere “broadcasting” mode regarding CSR issues (...) into a much more interactive mode of relationship management. (shrink)

Socially responsible investors buy financial securities with two goals: to make a market-based return, and to make companies act in a more socially responsible way. Most research on socially responsible investment deals with investing in stocks traded on major exchanges. We add the case of loaning small amounts of funds to microentrepreneurs through a discussion of a particular case. The case is that of Calmeadow which, in conjunction with the Royal Bank of Canada, set up a microlending project in rural (...) Nova Scotia (Canada). Using Hirschman’s analysis of “exit” and “voice”, we show that while socially responsible investors may make market-based returns for their investments in stocks traded on major exchanges, they have no effect on corporate behaviour because their action consists of exit, and they are easily replaced by other investors. They attain their first goal but not their second. On the other hand, in the Calmeadow/Royal Bank of Canada case, we see that those who lend money to microenterprises can more easily use voice. The relative power difference between the lender and the microentrepreneur enables the lender to make the microentrepreneur act in a more socially responsible way, although only marginally. But because of the market imperfections existing in this case (the very high transactions costs associated with administering small loans), the lender concluded it could not attain a market rate of return. In this case, then, the lender attained its second goal but not its first. (shrink)

In this paper, I examine various popular notions concerning the ethics of investing. I first consider and reject the absolutist view that it is always wrong to invest in evil companies and the view that what makes investments in evil companies morally objectionable is the fact that by making such investments, investors are taking steps to benefit from the wrongdoing of others. I then defend the view that what makes certain investments morally objectionable is the fact that by making such (...) investments, investors enable others to do wrong. According to this view, when weighing the purchase of a certain company's stock, investors should ask themselves the following question: Would this sort of investment, if made by many people, enable others to do wrong? If the answer to this question is yes, and if an investor nevertheless makes the investment in question, he can justifiably be accused of moral wrongdoing. (shrink)

Investment Management makes heavy ethical demands which are not an optional add‐on, but part of the job of being a financial agent and fiduciary. The author is founder and President of Skandia Fonds, the Norwegian mutual funds management company affiliated with Skandia Group which pioneered the concept of green mutual funds in Norway. This paper was delivered at the Sixth Annual Conference of the European Business Ethics Network, held in Oslo last month. Its views are those of the author, and (...) do not necessarily represent his company's policy. (shrink)

Interest in the notion of the possible financial sacrifice suffered by socially responsible investment (SRI) fund investors for considering ethical, social and environmental issues in their investment decisions has spawned considerable academic interest in the performance of SRI funds. Both the Australian and international research literature have yielded largely mixed results. However, several of these studies are hampered by methodological problems which can obscure the significance of reported results, such as the use of small sample sizes, inconsistencies in the time (...) frames selected to analyse performance and different modelling frameworks used to estimate investment returns. This study attempts to redress some of these issues by investigating the returns performance of 89 ethical funds in Australia over the period 1986-2005. Using a multi-factor CAPM model [Fama, E. F., and K. R. French (1996) J. Finance 51(1), 55] (which controls for factors such as size, book-to-market value and momentum) we find that ethical funds significantly under-perform the market in Australia, particularly in the most recent 5 years of our sample period (2000-2005). Risk adjusted returns (using Jensen's alpha) indicate that average annual underperformance is around 1.52% in the 2000-2005 period for our sample and .88% over the whole sample period. Our results contrast with many previous studies (both Australian and international), which have not found statistically significant differences in the performance of ethical funds relative to market benchmarks and/or a matched sample of conventional funds. (shrink)

Ethical investing is all the rage. Unfortunately, excitement about it has outpaced plausible philosophical discussions. This article asks and answers two questions: “What counts as investment?”, and “What moral choices do investors have?”. I answer the first question broadly. Investment is pervasive in our economy, and by participating we share responsibility for corporate practices. These facts lead to an “austere conclusion”: short of outright withdrawal from the standard forms of investment, we have little hope of avoiding participation in immoral activities. (...) Thus we must withdraw. Fortunately, the answer to the second question mitigates this disturbing result. Under certain circumstances, shareholder activism aimed at moral goals is a valuable way to participate in a deeply flawed system. By demonstrating the pervasiveness of investment and analogies with consumption and democratic political participation, the conclusions of this paper illuminate not only the ethics of investment but a more-general problem of individual responsibility in complex institutions. The paper is informative both for its applicability to these latter questions, and for its demonstration that investment is not merely a side-topic for business ethics texts, but rather a central problem of modern market societies. (shrink)

There is a move towards more use of engagement strategies in responsible investment. This change in strategies is motivated by a number of claims about the effectiveness of engagement versus exclusion of companies from the investment universe. This paper examines the basis for three central claims: That engagement, in contrast to exclusion, does not reduce the investment universe; That exclusion reduces an investor's influence on a company; and That engagement with exclusion is necessarily a more effective means of influencing companies (...) than pure exclusion. All three claims are argued to be open to challenge. It is possible that the move towards more engagement reflects bureaucratic incentives and political considerations among institutional investors, rather than arguments about the effectiveness and efficiency of engagement. (shrink)

ABSTRACTDuring the last few decades, globalization of finance markets has come under increasing pressure to manage the many risks that companies face due to the negative impact that certain financial crises have had on securities quoted on the stock exchange. Simultaneously, there is a growing tendency among different institutional investors to take into account nonfinancial aspects—social, environmental, and ethical values—of company management. In this respect, increasing numbers of asset managers are aware of the importance of nonfinancial aspects of company management (...) for finance markets. Asset managers integrate corporate social responsibility, sustainability policies and corporate governance strategies as indicators in risk management and the search for long‐term investments. The largest segment of socially responsible investment screened and mutual funds are portfolios that are privately managed on behalf of institutions. Socially responsible investors include private and public pension funds, mutual funds, and private accounts that are managed on behalf of institutional investors such as corporations, universities, hospitals, religious institutions, and nonprofit organizations, among others. The aim of this paper is to analyze the development of SRI‐screened management corporate pension plans in the Spanish finance market. Spain is one of the European countries with a less developed SRI institutional market. Since SRI is still at the fledgling stage in the Spanish institutional market, this analysis is restricted to the awareness of SRI among a sample of the total number of corporate pension funds or schemes in Spain. The paper concludes with some proposals to encourage wider SRI acceptance and practice in Spain. (shrink)

Sustainable investment (SI), which integrates social, environmental and ethical issues, has grown from a niche market of individual ethical investors to embrace institutional investors (e.g. pension funds) resulting in £764 billion in assets under management in the UK alone [Eurosif, 2008 : ‘European SRI Study 2008’ (Eurosif, Paris)]. Explaining this growth is complex, involving shifts in personal and collective values, reactions to corporate scandals, scientific and media pronouncements about climate change, Government initiatives, responses from financial markets and the influence of (...) SI innovators in The City of London. The article examines the influence of human agency through interviews with 14 SI champions who have variously been responsible for launching SI funds and changing investment processes and organisational structures in order to enhance SI. Interviewees were asked about their motivations and persuasive strategies, the obstacles they faced and how they overcame them as well as broader implications of SI for financial markets. The following key categories inform the results and the discussion: Values; Conservatism, Antipathy and Incredulity; Optimism and Sympathy from Insiders; The Social and Political Context; The Business Case; Organisational Constraints; Inappropriate forms of Remuneration; Short-termism; The Nature of Capitalism. Three discourses were also identified. The first is the necessity to make a business case for SI; the second is the benefits that SI can bring to the quest of overcoming short-termism; the third is a belief that for SI to have a significant influence, greater government intervention is required. (shrink)

An important goal of ethical investment is to influence companies to improve their ethical and environmental performance. The principal means that many ethical funds employ is passive market signalling, which may not, on its own, have a significant effect. A much more promising approach may be active engagement. This paper reports on a questionnaire study of a sample of 1146 ethical investors in order to assess whether U.K. ethical investors would support more activist ethical investment and whether they would be (...) prepared to invest in companies which are failing ethically in order to do so. The results show general support for the current practice of passive signalling accompanied by "soft" engagement in the form of lobbying and the development of dialogue in order to improve corporate practice. The "harder" options of investing in companies that err in order to change them is, however, favoured by consistent minorities. (shrink)

The paper focuses on the development and practices of Socially Responsible Investment (SRI) in the US and Europe. The aim is to explore the historical, cultural and political embeddedness of SRI. Based on secondary sources of information, it offers a comparative analysis of the development and current practicesof SRI on both sides of the Atlantic and discusses the future implications for SRI. The paper shows that SRI movements in both regions present differences in terms of definitions, actors involved, vocabulary and (...) motivations, and strategies implemented. Nonetheless, they also share a common underlying purpose and seek similar goals of improving corporations’ policies and practices on social and environmental issues. (shrink)

This paper reviews the development of socially responsible investment (SRI) in the Spanish financial market. The year, 1997 saw the appearance in Spain of the first SRI mutual fund, but it was not until late 1999, that major Spanish fund managers offered SRI mutual funds on the retail market. The development of SRI in the Spanish financial market has not experienced the high levels of development seen in other European countries, such as France or Italy, where interest in SRI began (...) during the same period. This paper presents an analysis of the impact of SRI mutual funds managed by Spanish fund managers comparing the evolution of managed assets and number of investors. We also analyse the investment strategies adopted by these funds, which mainly use negative screening criteria and the participation of non-governmental organisations as institutional investors. An analysis of the take up of socially responsible investment in the Spanish financial market shows majors deficits in this process. This is due to Spanish investors having limited sensitivity to social issues and knowledge of SRI, and a lack of development of SRI investment strategies, such as engagement or shareholder activism by fund managers. Furthermore, the take-up of SRI mutual funds in the Spanish financial market coincided with a fall in the stock market at the beginning of the 21st Century. We conclude with an analysis of the relationship between SRI and Corporate Social Responsibility (CSR). (shrink)