Socially Responsible Investment

Corporate social responsibility (CSR) research has ignored the arms industry, in large part because of political assumptions that tie this industry to nation-state sovereignty. Bypassing this obsolescent Westphalian world-view, I examine the US arms industry on the basis of CSR requirements regarding the environment, social equity, profitability, and use of political power. I find the arms industry fails each of these four CSR requirements. In response to the assertion that the arms industry should not be subject to CSR requirements because (...) it is crucial to national defense, I point out that many arms manufacturers are post-Westphalian entities more powerful in their own right than many nation-states. So they should be held responsible for the foreseeable consequences that flow from use of their products, both under civil law and, where applicable, under international human rights standards. (shrink)

Corporate social responsibility (CSR) has become a focal point for research aimed at extending business ethics to extra-corporate issues; and as a result many companies now seek to at least appear dedicated to one or another version of CSR. This has not affected the arms industry, however. For, this industry has not been discussed in CSR literature, perhaps because few CSR scholars have questioned this industry's privileged status as an instrument of national sovereignty. But major changes in the organization of (...) political communities call traditional views of sovereignty into question. With these considerations in mind I assess the U.S. arms industry on the basis of CSR requirements regarding the environment, social equity, profitability, and use of political power. I find that this industry fails to meet any of these four CSR requirements. Countering a claim that these failings should not be held against arms manufacturers because their products are crucial to national defense, I contend that many of these companies function not as dutiful agents of a nation-state but as politically powerful entities in their own right. So, I conclude, they should be held responsible for the foreseeable consequences that flow from use of their products. This responsibility should include civil liability and, in cases involving war crimes and violations of human rights, responsibility under international human rights standards. (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)

The article sets out to consider the practice of ethical investment in the light of some basic principles of moral philosophy. After establishing some principles which have been applied to individual or social conduct, it reviews the application of ethics to business, and the precedents established for investment. Because of the links between ethical investment and single‐issue campaigning, there is a detailed consideration of the relationship between campaigning groups and the issues they are concerned with on the one hand, and (...) ethical investment on the other. The conclusion is reached that ethical investment is as much a process as a series of specific aims, and that a diversified ethical fund must consider matters in the round, within the scope of current knowledge, and must avoid an absolutist agenda. (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)

Socially responsible investment in France is based on a “best in class” approach as opposed to the “exclusion” approaches used in other countries such as the United States or United Kingdom, where the rejection of sin stocks has been dominant historically. The objective of this research note is to examine whether the French SRI market, by focusing more on financial rather than on ethical considerations, compared with other countries such as the United States, the United Kingdom, or even Sweden, may (...) lead to a form of “mainstreaming” of SRI processes. The authors explore several convergent mechanisms. First, the authors analyze the importance of the mainstreaming issue in the history of SRI as well as in the contemporaneous debate in the academic literature on the links between financial and extrafinancial performance. Second, the authors review the role played by ethical finance laws adopted in France in the early 2000s in the development of the SRI market. Finally, the authors discuss the results of a survey of French SRI analysts working both for large institutional investors and asset managers in France in 2009. (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)

The article explores the relationship between science and ethical investment, which is often concerned with the application of science and technology through commercial organisations. The article considers the contribution that scientific understanding makes to ethical investment, and the way in which ethical investment can improve the public perception of science. It then goes on to consider the historical relationship between science and society and the lessons that might be learnt from scientific study in developing a methodology for ethical investment. The (...) conclusion reached is that scientific understanding provides the bedrock for many of the concerns which arise in ethical investment, as well as providing an indication of the nature of the research involved. (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)

This article presents the results of a study that analysed whether social responsibility had any bearing on the decision making of institutional investors. Being that institutional investors prefer socially aligned organizations, this study explored to what extent the corporate actions and/or social/environmental investments influenced their decisions. Our results suggest that there are specific variables that affect the perceived value of the organization, leading to decisions to not only invest, but whether to hold or sell the shares, and therefore having a (...) consequential impact on the capital market’s valuation. (shrink)

Many writers have commented on the heterogeneity of the socially responsible investment (SRI) movement. However, few have actually tried to understand and explain it, and even fewer have discussed whether the opposite – standardisation – is possible and desirable. In this article, we take a broader perspective on the issue of the heterogeneity of SRI. We distinguish between four levels on which heterogeneity can be found: the terminological, definitional, strategic and practical. Whilst there is much talk about the definitional ambiguities (...) of SRI, we suggest that there is actually some agreement on the definitional level. There are at least three explanations which we suggest can account for the heterogeneity on the other levels: cultural and ideological differences between different regions, differences in values, norms and ideology between various SRI stakeholders, and the market setting of SRI. Discussing the implications of the three explanations for the SRI market, we suggest that there is reason to be sceptical about the possibilities of standardisation if not standardisation is imposed top-down. Whether this kind of standardisation is desirable or not, we argue, depends on what the motives for it would be. To the extent that standardisation may facilitate the mainstreaming of SRI, it could be a good thing – but we entertain doubts about whether mainstreaming really requires standardisation. (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)

Socially responsible investing identifies the fiduciary duty and liability for financial advisors serving individual and institutional clients when consulting in the SRI space. This article first discusses the role of a fiduciary emerging from both a legal and an ethical basis. Further, the special aspects of maintaining fiduciary duty and minimizing fiduciary liability are described as they relate to SRI. A number of recommendations are discussed: legal, ethical, and practice. This study argues that prudence focuses more on the process of (...) decisions rather than their outcomes, as measured exclusively by rate of return. (shrink)

Regulation must target the financial sector, which often funds and profits from environmentally unsustainable development. In an era of global financial markets, the financial sector has a crucial impact on the state of the environment. The long-standing movement for ethically and socially responsible investment (SRI) has recently begun to advocate environmental standards for financiers. While this movement is gaining more adherents, it has increasingly justified responsible financing as a path to be prosperous, rather than virtuous. This trend partly owes to (...) how financial institutions view their legal responsibilities. The business case motivations that now predominantly drive SRI are not sufficient to make the financial sector a means to sustainable development. Some modest legal reforms to improve the quality and extent of SRI have yet to make a tangible difference. A more ambitious strategy to promote SRI for environmental sustainability is possible, based on reforming the fiduciary duties of financial institutions. Such duties, tied to concrete performance standards, could make financiers invest in more ethically responsible ways. Other collateral reforms to financial markets, including improved corporate environmental reporting, are required to promote sustainability. (shrink)

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 paper explores the emergence and development of socially responsible investment (SRI) in Japan. SRI is a recent field in Japan. It is not clear which model it will follow: the European, American or its own model. Through the analysis of the historical roots of SRI, the key actors and motivations that have contributed to its diffusion, the paper provides explorative grounds to sketch the translation mechanisms of SRI in Japan and offers insight into its future path. Based on primary (...) and secondary sources of information, the paper shows that although SRI in Japan holds some similarities with the U.S. and especially with the European model, it remains unique. It highlights the importance of translation and re-interpretation in adopting a practice in a new context. SRI in Japan is still in a dynamic construction process. Although we expect it to develop further, it is difficult to depict its future shape and form. (shrink)

What drives organisations to engage in socially responsible purchasing initiatives? To investigate this important question, this article uses a case-study approach to examine the context within which supplier diversity programmes have emerged in both the U.S. and U.K. The analysis identifies legislative and policy developments, economic imperatives, stakeholder pressures and ethical influences as forces shaping organisational responses. It reveals important contextual differences between U.K. and U.S. experience and offers an empirical and theoretical explanation of corporate behaviour.

This article addresses the growing industry of retail socially responsible investment (SRI) profiled mutual funds. Very few previous studies have examined the final consumer of SRI profiled mutual funds. Therefore, the purpose of this study was to, in an exploratory manner, examine the impact of a number of pro-social, financial performance, and socio-demographic variables on SRI behavior in order to explain why investors choose to invest different proportions of their investment portfolio in SRI profiled funds. An ordinal logistic regression analysis (...) on 528 private investors revealed that two of the three pro-social variables had a positive impact on how much the consumer invested in SRI profiled funds. Moreover, there was proof of a non-altruistic motive for investing in SRI as consumers who perceive that financial return of SRI is equal or better than "regular" mutual funds, invested a greater proportion of their portfolio in SRI profiled mutual funds. Furthermore, the results showed that women and better-educated investors were more likely to invest a greater proportion of their investment portfolio in SRI. Overall, the findings indicate that both financial perceptions and pro-social attitudes are connected to consumer investment in SRI. (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)

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)

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)

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)

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 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)

This paper empirically examines the financial performance of a UK unit trust that was initially “conventional” and later adopted socially responsible investment (SRI) principles (ethical investment principles). Comparison is made with three similar conventional funds whose investment objectives remained unchanged. Analysis techniques employed in previous studies find similar results: mean risk-adjusted performance is unchanged by the switch to SRI, with no evidence of over-or under-performance relative to the benchmark market index by any of the four funds. More interestingly, changes in (...) variability of returns over time are also modelled using generalised autoregressive conditional heteroscedasticity models, not previously applied to SRI funds so far as is known. Results show a temporary increase in variability of returns, followed by a return to previous levels after around 4 years. Evidence shows the increased variability to be associated with the adoption of SRI rather than with a change in fund management. Possible explanations for the subsequent reduction in variability include the spread of corporate social responsibility activities by firms and learning by fund managers. In addition to reporting on a previously unobserved phenomenon, this paper raises questions for further research. (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)

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)

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)

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)

This entry focuses upon the current state of microlending activity, and particularly for-profit activity, with ethical analysis of such lending, particularly as it pertains to prospects for poverty alleviation and development for the global poor. Several specific events have lately altered the characteristics of microlending and the general assessments of its prospects: most notably the collapse of the for-profit microfinance market in Andhra Pradesh late in 2010 and research previously pursued within the same state of India that would greatly reduce (...) our estimation of the promise of microcredit for poverty alleviation. This brief piece of writing indicates, but can hardly serve to argue fully, two conclusions. First, that current views of microlending, for better or worse, will tend to promote economic exclusion of the poorest. Second, because the advantages and disadvantages of microlending for poverty alleviation and for women's empowerment have a great deal to do with the specific circumstances of lending, unpromising results found in some circumstances may be taken with a grain of salt. (Pre-review draft July 2016, for Robert W. Kolb, ed. The SAGE Encyclopedia of Business Ethics and Society: 2nd edition. Sage Publications. 2017. Corrected copies may be obtained from the author following publication, March 2017.). (shrink)

This paper examines the rise of socially responsible investment (SRI) as a sustainable finance mechanism and discusses the potential of SRI to contribute toward a more socially responsible and environmentally sound model of commerce in the Asia-Pacific region. Using a case study approach, I argue in this paper that the potential of SRI to accelerate the private sector toward greater sustainability has been to date largely explored within the North American and European regional contexts and that the future global development (...) of SRI is likely to depend on whether and to what degree SRI becomes a viable financial instrument in industrialized (Japan) and emerging (Hong Kong/China) economies of the Asia-Pacific region. (shrink)

Responds to the article by Brad Brown and Susan Perry in the August 1995 issue of `Business & Society' periodical on the measure of corporate social responsibility (CSP).

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)

Socially responsible investing is an increasingly well-known investment strategy. However, in most nations, SRI is not mainstream practice. This paper investigates perceptions of SRI amongst investment professionals from “high-net-worth” investment firms in Toronto, Canada. Existing corporate practices in relation to stock selection and client relations are documented, in order to assess how these practices might facilitate or prevent SRI. Views of SRI, and its current and potential future role in investment practice, were also explored. Results suggest that, while awareness of (...) SRI has increased in recent years, it has not become accepted practice in highnet-worth investment firms. This lack of adoption stems from the perceived additional burden of researching the ethical performance of companies, rather than any fundamental disagreement with the principles of SRI. In addition, interview participants pointed to low levels of client demand. Increased awareness of SRI among both professionals and clients was seen as the most effective way of increasing its adoption. The paper concludes by discussing the implications of this research for social responsible investing in Canada’s highnet-worth investment firms as well as in the broader investment world. (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)

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)

With a meta-analysis of 85 studies and 190 experiments, the authors test the relationship between socially responsible investing and financial performance to determine whether including corporate social responsibility and ethical concerns in portfolio management is more profitable than conventional investment policies. The study also analyses the influence of researcher methodologies with respect to several dimensions of SRI on the effects identified. The results indicate that the consideration of corporate social responsibility in stock market portfolios is neither a weakness nor a (...) strength compared with conventional investments; the heterogeneous results in prior studies largely reflect the SRI dimensions under study. (shrink)

We found that pension funds may face a bottleneck as practical impediments to engaging in responsible investment with respect to the role played by defining and implementing responsible investment. Furthermore, pension funds seek additional coherence and practical guidelines in this field to enable them to take into account ethical considerations in their investment strategies and in implementing them. These findings indicate that the availability of information may affect the stance that key decision makers of pension funds adopt towards responsible investment.