The effectiveness of socially responsible investment: a review

Abstract

Over the past two decades, an increasing number of shareholders have begun to consider non-financial criteria, such as social and environmental criteria, in making investment decisions and executing shareholders rights. Investing based on such criteria is often labelled socially responsible investment (SRI). This article reviews the actors in SRI, the motives for SRI, relevant theoretical frameworks and the effectiveness of SRI in changing environmental, social and corporate governance (ESG) performance of public companies. Various actors with different motives engage in SRI through distinct strategies. Although the effects of SRI strategies are difficult to identify and quantify, overall, SRI does not yet play a major role in changing ESG performance. Several factors can be identified that impede SRI in improving ESG performance, together forming an action agenda for SRI researchers and practitioners. The research agenda for SRI studies should include examining poorly studied engagement strategies; identifying the factors that govern SRI effectiveness; elucidating the relationship between shareholders and other actors, such as NGOs, governments and media; and building theoretical frameworks to understand and analyse SRI, for which the theory of stakeholder salience and ecological modernisation theory provide promising starting points.