The role of social performance in microfinance investment decisions

Socially responsible investing (SRI) is an investment process that screens investment opportunities based on ethical, social, corporate governance, or environmental. SRI has been growing rapidly; total U.S.-domiciled SRI-managed assets increased from $3.74 trillion in 2012 to $6.57 trillion in 2014. The growth of SRI puts it in a position to encourage sustainability as such firms have better access to capital markets. Unfortunately, while financial performance indicators have become standardized, social and environmental performance ratings have not. As the prominence of SRI grows, so does the number of metrics available to evaluate corporate social performance: there were 21 ratings in 2000 and that number grew to 108 by 2012. The complexity of environmental and social performance contributes to the proliferation of rating metrics. Different aspects of environmental performance might be important to different rating schemes. For instance, one rating could place emphasis on greenhouse gas emissions, while another rating could focus on water usage. The heterogeneity of such ratings creates a situation in which the results of an assessment of environmental performance can differ based on which criteria are used. This case examines this phenomenon. This case study examines 13 publicly traded chemical companies in order to understand the various measures and dimensions of corporate environmental performance. Students are presented with real-world data on corporate environmental performance (including pollutants released and third-party corporate social responsibility ratings) and asked to incorporate environmental and social performance into investing decisions. This case highlights some of the challenges of evaluating corporate environmental performance. This includes the positive correlation between environmental strengths and concerns. That is to say, firms that tend to have significant environmental issues, tend also to invest in sustainable practices. Thus looking only at environmental strengths might present a misleading picture of firm corporate environment performance. A companion teaching note is available upon request from the authors.

An increasing percentage of the total net assets under professional management is devoted to ethical investments. Socially responsible investment (SRI) funds have a dual objective: building an investment strategy based on environmental, social, and corporate governance (ESG) screens and providing financial returns to investors. In the current study, we investigate whether this dual objective has an influence on the behavior of mutual fund managers in the realization of gains and losses. Evidence has shown that most investors in SRI funds invest in those funds primarily because of their social concerns. If the motivations of SRI managers align with those of SRI investors, SRI managers might then have more incentives than conventional managers to hold onto losing stocks if they feel their social value compensates for the economic loss. We hypothesize that SRI managers would be less prone to the disposition effect than conventional managers. Pertaining to the disposition effect, we do not find evidence of a difference in the behavior of SRI fund managers compared with that of conventional fund managers. Our results hold, even when considering market trends, management structure, gender, and prior performance.

This paper examines the moderating effect of experience and size of fund towards socially responsible investment (SRI).A survey was conducted to get the responses of fund managers, and data were analysed using a multi-group approach of Structural Equation Modelling (SEM).At intentional level, there was a significant moderating effect on the relationship between attitudes and caring ethical climate towards an intention to SRI among less experienced fund managers. There was a significant moderating effect on the relationship between subjective norms and perceived behavioural control towards an intention to SRI among more experienced fund managers. There was also a significant moderating effect on the relationship between subjective norms and caring ethical climate towards an intention to SRI among small-sized fund managers. At behavioural level, there was a significant moderating effect on the relationship between moral intensity and SRI behaviour among less experienced fund managers. There was also a significant moderating effect on the relationship between moral intensity and caring ethical climate on SRI behaviour among bigger-sized fund managers. This paper conduits the literature gap by expanding the understanding on the moderating impact of experience and size of fund towards SRI, provides insights to policy makers in carrying out appropriate talent development strategies in accumulating the support of fund managers towards SRI-related initiatives in the capital market, and reveals the potential contribution of fund manager talent management in sustainable development through SRI. The paper offers vision on fund manager talent management to forefront the progress of SRI in emerging economies.

Due to the diversity amongst SRI funds it is too simplistic to divide the mutual fund universe in two blocks of SRI (socially responsible investment) funds and conventional funds. Therefore, we use a unique rating of UK SRI funds, which takes into account the screening criteria as well as the rigorousness of their application. In order to analyse the relationship between social and financial performance we use the 3-level-Carhart model. The underlying sample consists of 50 UK SRI funds whose returns between July 1998 and July 2010 are analysed. The results show that the portfolios with the highest social ratings underperform significantly, whilst the portfolios with the lowest social ratings do not significantly underperform the market benchmark. However, the analyses do not reveal a clear linear pattern. Therefore, more social performance does not automatically mean less financial performance.

This study introduces many ideas of scholars, joins the gains of study, and puts forward the sustainable concept of enterprise's practice. It describes the interaction of social and financial performances, and the degree of influence that enterprise's performance has got from the behavior of managerial and institutional shareholding. Under controlling relevant operation parameters, with the multiple financial performance indicator (Tobinq, ROA, ROE, EPS), this study uses the research approach of three-stage simultaneous equations. To construct unbiased, consistent and validity model, we can receive comparatively reliable result and offer behavioral bases of relevant interested parties. In order to get more robust empirical result, this study processes empirical test with samples divided into three groups: 1) full samples, 2) TobinQ ≥ 1 samples, 3) TobinQ < 1 samples. This research suggests that the sample shows there is apparent influence of the behavior of the managerial and institutional shareholding on social performance; and the relation of the managerial shareholding and social performance is non-linear and concave to the x-axial. It has positive and significant influence on the relationship between social and financial performances; among multiple financial indicators, the sample of businesses with low corporate value is more significant. This point offers good investment message for investors. Furthermore, it facilitates the progress of social responsibility. Key words: Corporate practice, economic practice, social practice, social responsibility, social performance, financial performance, sustainable operating, the stakeholder, social responsibility investment.

This study is the first to examine the efficacy of the Cumulative Prospect Theory value of the past return (CPTV) to explain fund flow in emerging markets funds by considering the impact of fund managers’ characteristics and behavioural biases on fund investors’ investment decisions. Besides, this study also investigates the impact of fund investors’ ability to identify fund managers’ skills. The findings suggest that CPTV has a significant and positive association with subsequent fund flow and emerging market funds’ performance. Notably, the study documents a negative relationship between fund flow and fund size and also highlights that newer funds generate greater fund flows. Furthermore, the findings indicate that investors investing in emerging market funds tend to behave differently, allocate money for alpha, and avoid giving distorted income for factor-related returns to fund managers. The results demonstrate that managers’ skill and portfolio concentration decision affects fund flow and CPTV relationships. The findings illustrate that fund managers who concentrate their portfolio and invest in high CPTV stocks tend to generate higher fund flow than their diversified counterparts.

U NLESS quality is apparent at the point of sale, the market must find ways to ensure the delivery of high-quality products; otherwise, producers have incentives to sell low-quality goods at high-quality prices, thereby assuring a degenerate equilibrium.1 Various solutions to this problem have been proposed, most revolving around bonding mechanisms.2 For bonds to work, however, consumers must react to the delivery of less-than-promised quality.3 In general, the faster consumers detect and react to delivery of low-quality products, the more efficient the market is in delivering high-quality products.4 Despite its prominence in the theoretical literature, direct evidence of consumer response to less-than-promised quality is rarely measured. This is a shortcoming presumably attributable to the difficulty of measuring both the difference between expected and actual product quality and

Time-varying fund manager skills of socially responsible investing (SRI) funds in developed and emerging markets

PurposeIndia is an emerging economy and one of the preferred investment destinations for environmental, social and governance (ESG) fund issuers. Institutional investors invest retail investors’ money, and hence, it becomes imperative for ESG fund managers to understand the social investment preferences of retail investors. This study aims to compare the Indian socially responsible (SR) investors and conventional investors in terms of their socially responsible investment (SRI) awareness level, opinions about broad and specific ESG issues, investment behavior and demographics. In addition, this paper makes an attempt to have a deeper insight into Indian investors’ behavior toward SRI by segmenting the Indian retail investors based on their SRI awareness level, attitude toward ESG issues and intention to accept lower financial returns, and choices made by them as consumers.Design/methodology/approachAfter collecting the data through the survey method an independent t-test is used to compare SR investors with conventional investors. Chi-square has been used to analyze the data related to demographics, and cluster analysis is used to identify segments among Indian retail investors.FindingsThe results indicated that Indian SR investors’ SRI awareness level is more, they are more concerned about broad and specific ESG issues, they are more into faith-based investing, and are responsible consumers vis-à-vis conventional investors. As per demographic, SR investors are in the middle age group of 30–40 years, male, hold a postgraduate degree and have an annual income of 10–20 lakhs in comparison to conventional investors. The results of cluster analysis indicated that Indian retail investors can be classified into three groups based on their SRI awareness, intention to sacrifice financial return, attitude toward ESG issues and choices made by them as consumers.Research limitations/implicationsResults have implications for national and international fund managers, policymakers, regulators and society. These results will help mutual fund companies to provide curated SR mutual funds as per the behavior and choice of retail investors and penetrate the Indian investment market more deeply.Originality/valueThis research study contributes to the literature on SRI by identifying the differentiating characteristics of Indian SR and conventional investors and segmenting Indian retail investors on the basis of their SRI awareness, the importance of ESG issues and choices made by them as investors and consumers.

This paper used event study methodology to analyse whether South African companies' returns are affected by unexpected increases or declines in their social performance. Using daily returns spanning from 2004 to 2014, this study found that abnormal returns of companies added to the South African Socially Responsible Investment (SRI) index for the first time were not statistically significant during the event period. Companies removed from the SRI index earned significant negative abnormal returns. This means that unexpected increases in companies' social performance has no effect on companies' returns; while unexpected declines in companies' social performance tend to affect companies' returns negatively. This study concludes that South African socially responsible investors consider unexpected decline in companies' social performance as bad news.

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).

Existing studies find that investors in socially responsible investments (SRI) (also known as sustainable, socially conscious, or ethical investment) exhibit different investment behaviour in comparison to conventional investors. This potentially also holds with Islamic investment, a unique form of SRI based on Shariah (Islamic law). This paper presents empirical evidence on the fund flow–performance relationship of Islamic equity fund (IEF) investors in comparison with conventional equity fund (CEF) investors. Using panel data on a large sample of Malaysian domestic equity funds from 2001 to 2009, the results provide evidence that IEF investors care about fund performance in much the same way as CEF investors. There is also weak evidence that IEF investors are more responsive towards poor performing funds by withdrawing money from these funds. When choosing funds based on other fund attributes, IEF investors again exhibit similar behaviour to CEF investors, investing more money into younger, larger, riskier funds as well as funds with higher expense ratios and turnover. We find that the market index has a negative influence in money flows such that investors consider market volatility as an opportunity and increase investment when market has not been doing well. The implications for Malaysian fund management are as follows. First, IEF investors appear to undertake rational investment decision making and thus fund managers managing IEF funds cannot expect a free ride because of the presence of Islamic principles in their construction. Second, bearish markets may be an opportunity for fund managers to increase funds under management as investors actively choose to invest funds in well-diversified

This study examines the impact of organizational ethical climate on perceived socially responsible investment (SRI) behavior with intention to engage in SRI as a mediating variable. This study uses questionnaire to collect opinion from respondents. Questionnaires were distributed to 320 fund managers of unit trust fund companies but only 84 of them positively responded by returning the filled questionnaires. This led to a response rate of 26.25%. On a scrutiny of the returned questionnaires, it has been found that 73 are fit for further processing or the usable rate of 22.81%. Employing Structural Equation Modeling (SEM) technique, the results showed goodness of fit for the model, indicating the appropriateness of the use of instrument and measurement. The analysis found that caring ethical climate has a significant and positive direct effect on perceived SRI behavior. Besides, a caring ethical climate has a significant and positive indirect effect on perceived SRI behavior with the intention to engage in SRI. The study found a significant direct effect of intention on perceived SRI behavior. However, the study has not found any evidence to support the association of instrumental ethical climate with intention and perceived SRI behavior. Key words: Organizational ethical climate, intention, socially responsible investment behaviour, unit trust fund managers.

PurposeThe purpose of this paper is to investigate whether socially responsible investment (SRI) is less sensitive to market downturns than conventional investments; the legal implications for fund managers and trustees; and possible legislative reforms to allow conventional funds more scope to invest in SRI.Design/methodology/approachThe paper uses the market model to estimate betas over the past 15 years for SRI funds and conventional investment funds during economic downturns, as distinct from during more “normal” (non‐recessionary) economic times.FindingsThe beta risk of SRI, both in Australia and internationally, increases more than that of conventional investment during economic downturns. Traditional fund managers and trustees in Australia are therefore likely to breach their fiduciary duties if they go long – or remain long – in SRI funds during economic downturns, unless relevant legislation is reformed.Research limitations/implicationsThe methodology assumes that alpha and beta in the market model are constant. Second, it categorises the state of the market into “normal” economic conditions and downturns using dummy variables. More sophisticated techniques could be used in future research.Practical implicationsThe current law would prevent conventional funds from investing in SRI. If SRI is viewed as socially desirable, useful legislative reforms could include explicitly overriding the common law to allow conventional funds to invest in SRI; introducing a 150 percent tax deduction or investment allowance for SRI; and allowing SRI sub‐funds to obtain deductible gift recipient status from the Australian Tax Office and other taxation authorities.Originality/valueThe accurate assessment of risk in SRIs is an area which, despite its serious legal implications, is yet to be subjected to rigorous empirical investigation.

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.