Abstract
Socially responsible investing (SRI) is gaining traction in the financial sector, but it is unclear whether the dominant financial logic complements or competes with the social logic in the founding of SRI funds. Based on insights we gained from observation at an Asian SRI industry association, interviews with SRI professionals in the U.S. and Europe, and other fieldwork, we questioned explanations for SRI’s conflicted relationship with the financial logic. Our observations prompted us to build a panel database of SRI fund foundings from 1970 to 2014 in 19 countries so that we could examine how a dominant logic interacts with alternative logics to promote or stifle institutional change. We decomposed the financial logic into interdependent dimensions as the provider of means (resources, practices, and knowledge) for novel financial ventures to be founded and the enforcer of profit-maximizing ends that constrain such foundings. Our theory suggests a paradoxical role for the financial logic, which explains an intriguing empirical finding: the founding of SRI funds has a curvilinear, inverted-U-shaped relationship with the prevalence of the financial logic. We propose and find that the relationship between the dominant financial logic and the social logic of SRI shifts from complementary to competing as the financial logic becomes more prevalent in society and its profit-maximizing end becomes taken for granted. We examined how certain alternative logics—those of unions, religion, and green political parties—moderate these effects. Our results shed light on how and to what extent institutional change can occur in fields in which one institutional logic is dominant. They also reveal country-level institutional factors that drive SRI.
Highlights
Responsible investing (SRI) is gaining traction in the financial sector, but it is unclear whether the dominant financial logic complements or competes with the social logic in the founding of Socially responsible investing (SRI) funds
‘Could you quantify SRI impact [on returns] on a three-month basis?’’’. This is consistent with prior findings on SRI in Sweden; as Jonsson (2009: 177) stated, SRI was not considered ‘‘sound asset management’’ because ‘‘[investment] should be done to earn money.’’ In societies with predominant financial logics, leaders of the SRI communities admit a ‘‘continuous frustration’’ that SRI is often opposed on the basis that ‘‘it hurts returns’’, and SRI managers we interviewed often made a point of distancing themselves from purely social objectives, insisting that their goal was to achieve competitive financial returns
The results—that financial institution depth has a positive relationship with the rise of SRI, while materialism has a negative relationship—support indirectly both the enabling and constraining effects of the financial logic in the rise of SRI, which are the joint mechanisms behind Hypothesis 1 (H1)
Summary
Responsible investing (SRI) is gaining traction in the financial sector, but it is unclear whether the dominant financial logic complements or competes with the social logic in the founding of SRI funds. We propose and find that the relationship between the dominant financial logic and the social logic of SRI shifts from complementary to competing as the financial logic becomes more prevalent in society and its profit-maximizing end becomes taken for granted. Mainstream financial organizations steeped in an existing financial logic, such as mutual funds (Lounsbury and Crumley, 2007) or commercial banks (Marquis and Lounsbury, 2007), may be sources of well-trained personnel who leave those firms to found competing organizations based on other logics (Thornton, Ocasio, and Lounsbury, 2012) In this way, the financial logic can simultaneously provide means that can be used for a variety of social ends and constrain those ends by making enterprises steeped in social goals illegitimate. A peak of SRI foundings could be reached followed by a decline in SRI foundings when the means and resources of the financial logic are redeployed almost exclusively to serve traditional financial end goals
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