Socially Responsible Equity Funds and the Dow Jones Sustainability Index

Abstract

I use variation created through changes in the index composition of the Dow Jones Sustainability Index (DJSI) to measure social preferences of U.S. domestic equity mutual funds. I find that while socially labeled funds (SRI funds) show a higher level of investments in DJSI stocks their response to changes in the index composition is not different from conventional funds. Moreover, out-of-sample predictions of reactions to index changes are weak for social responsibility ratings and the SRI label as predictors. The results either challenge the value of SRI labels and social responsibility ratings or the relevance of the DJSI for socially driven investment decisions.