Responsible Investment Strategies Research Articles

A Framework for Sustainable and Green Finance Through Effective Trading Portfolio Management

This research paper responds to the growing global demand for environmentally and socially responsible financial practices by outlining a strong framework for incorporating sustainable and green finance into effective trading portfolio management. The study acknowledges the current difficulties of reconciling financial goals with sustainability criteria and uses a methodological approach that includes risk-sensitive asset allocation, mean-variance optimization, and strategic maximization of the Sharpe ratio. By carefully examining and analyzing this research, it explores the complex dynamics of sustainable finance, thus providing a holistic understanding of how financial success is related to environmental and social responsibility. The findings of this study provide important insights into ongoing discussions on responsible investment strategies, thereby giving investors and policymakers a guide on how to align their financial objectives with sustainable development imperatives.

Looking at socially responsible investment strategies through the lenses of the global ETF industry

Environmental, Social, and Governance (ESG) ratings feature statistical and economic problems undermining their reliability as valid proxies for corporates’ social performance. To overcome this ratings providers specific bias, we focus on global sample of ESG-oriented Exchange Traded Funds (ETFs). Studying passive and pre-committed strategies provide us with several economic and econometric advantages, allowing us to document that Socially Responsible Investments (SRI)-oriented strategies generate significantly higher average stock market returns and liquidity. However, the identified overperformance is concentrated in months of extreme climate activity, while the effect reverses during financial crises. These findings confirm that investors react to non-pecuniary shocks by increasing the weights assigned to SRI investments in their portfolio, but their preference shifts back towards traditional strategies during economic downturns.

Climate risk and future stock price crash: Evidence from U.S. firms

This study investigates the impact of climate risks on stock prices and explores the measures that corporate managers may take to stabilize their company's stock price in response to unexpected climate risks. We analyze a sample of U.S. firms from 1996 to 2022 and find that firms located in disaster-prone counties are associated with a higher risk of stock market crashes. The results indicate that firms exposed to climate risks are more likely to experience unexpected earnings and breaks in earnings strings. While earnings management can sometimes provide short-term benefits, it can also lead to long-term risks and negative consequences on stock price crashes. Moreover, mature firms and firms with higher CEO pay-performance sensitivity are more susceptible to stock market crashes. The findings suggest that climate risk can induce short-term thinking among managers, affecting market valuation. By shedding light on the complex relationship between climate risks and financial risks, this study can inform responsible investment strategies and corporate governance policies that promote transparency, accountability, and long-term value creation.

Corporate sustainability and shareholder return: A comparative study on the return of the shares that make up the B3 corporate sustainability index

This article aims to answer the following question: Do companies with sustainable initiatives bring a greater return to shareholders? The authors have built a hypothetical portfolio based on the B3 Corporate Sustainability Index (ISE) methodology through an ex-post facto descriptive research. The authors have also calculated the beta and weighted returns considering each share weight and the proportional impact on the portfolio. The alpha calculation and the association with the Student 's t-test allowed investigation on the possibility of an incremental return concerning the adopted reference. We have concluded that the responsible investment strategy in companies considered sustainable, through the hypothetical portfolio, does not bring the possibility of an incremental return to the shareholder when compared to the market portfolio. On the other hand, the hypothetical portfolio does not bring a return lower than the market portfolio. That is, its performance does not fall short.

FACTORS DETERMINING SHARIA RESPONSIBLE INVESTMENT STRATEGIES

This study aims to find out and analyze the factors that determine the strategy of sharia responsible investment principles to become a reference for the public in investment activities as part of the effort to realize sharia maqashid, especially in maintaining assets. The research methodology being used is the Analytic Network Process (ANP) by involving various experts and or practitioners in the field of investment and sharia economics. Numbers of journals are also used as references to determine problem variables, solutions and strategies. The results of the analysis extracted from the responses of the experts were concluded that (1) the existence of regulations such as reward & punishment and regulatory supervision is a problem in the application of sharia responsible investment principles, as well as successively (2) public awareness and fund managers - in this case an understanding of the benefits of sharia-responsible investing (3) the resources of investment managers and (4) the Islamic investment climate itself. Solutions to the problem of implementing sharia responsible investment strategies successively (1) providing tax incentives for Islamic investment funds managed in accordance with the principles of responsible investment (2) integration of capital market issuers (3) literacy & socialization to the public and related parties to increase understanding of sharia responsible investment (4) increase commitment of issuers and the existence of ESG-proven investment instruments supported by special ESG rating agencies.

The burgeoning field of sustainable investment: Past, present and future

AbstractThe current concern with sustainability issues pervades all scientific fields. Sustainable investment is not an exception judging by the significant increase in the literature. This work provides an extensive up‐to‐date overview of studies on sustainable investment, revealing current trends, identifying gaps and future research topics. A total of 1091 documents are reviewed and bibliometric analysis is used with two approaches: data analysis and conceptual structure of the field. Additionally, a classification into 12 categories by topic is proposed. The results show that more than 40% of the publications belong to analysis of classical investment tools with a gradual evolution towards the concept of “green” instruments. Socially Responsible Investment (SRI) strategies have changed over time from “screening” to the current “best‐in‐class”, “Environmental, Social and Governance (ESG) integration” and “impact investing.” The results of the study are valuable for academics and practitioners, as they show the current state of knowledge, evolution paths and emerging topics.

Investigation of Socially Responsible Investment Strategies Taxonomy

Purpose: To generalize a taxonomy of responsible investment strategies based on assessing the main trends in the development of SRI at the global level and by major geographical regions. Analyse the types of existing SRI strategies and rank them according to their leading positions and active use in different geographical regions.
 Design/Method/Approach: System-structural in order to generalize approaches to the typology of socially responsible investment strategies in accordance with the current assets structure managed by investment managers, including by geographical regions; systematic analysis to identify current trends and patterns in the investment processes in line with the Sustainable Development Goals (SDGs); statistical and graphical methods for quantitative and visual presentation of analysis results.
 Findings: The current mechanism of socially responsible investments distribution in comparison with traditional assets is characterized; global trends in the field of SRI are assessed; the taxonomy of SRI strategies in accordance with general scientific approaches and classifications of international investment organizations aimed at achieving the Sustainable Development Goals at the global level has been formed and generalized.
 Theoretical Implications: A comprehensive assessment of global investment processes is carried out in the context of responsible investment and achievement of the Sustainable Development Goals; the most optimal approaches to the RI strategies typology have been determined based on its current trends, the level of attraction of them in different regions in order to apply them in the impact investments programs, developing the country's profile as an investment donor.
 Research Limitations/Future Research: The the obtained results will be used in the further study of the transformation of the stock market in Ukraine based on the responsible trajectory and fractal analysis. Also, identified responsible investment strategies can serve as a basis for developing the investment profile of the impact investment donor country, as well as for highlighting priority areas for attracting investments to restore the country's economy after crises, military conflicts and other macroeconomic destabilization factors.
 The study was performed within the state budget research “Fractal model of the stock market transformation in Ukraine: socially responsible investment to achieve the Sustainable Development Goals” № 0121U100473
 Paper type: Empirical

Transforming Socially Responsible Investment: Lessons from Environmental Justice.

There is limited evidence that socially responsible investment (SRI) strategies can resolve persistent concerns brought up in scholarship on the industry, particularly as it relates to considerations of justice. It is critical that SRI initiatives be interrogated about their broader impacts on environmental inequality and justice in the context of global power relations. Drawing upon environmental justice (EJ) theory, we propose a framework for transformative investment to halt the exploitation of humans and environment in pursuit of profit. We posit that transformative investment initiatives, including those related to strategies of screening and shareholder resolutions, would reflect three general conditions of environmental justice. They would require (1) cumulative responsibility that focuses on holistic gains so that investment initiatives do not replace one harm with another; (2) embedded accountability that is rooted in the decision-making and concerns of directly impacted communities; and (3) counter-hegemonic practices that are integrated with broader strategies and movements that challenge structures of oppression and exploitation. Through these principles, we address problems with SRI that have already been identified in scholarship on the subject. Moreover, we draw upon Antonio Gramsci’s concept of ‘strategic power’ to conceptualize the conditions and actions necessary for transformative investment to take root.

Reflecting on the changing landscape of shareholder activism in South Africa

Background: Investors around the globe are increasingly focusing on investing in a responsible manner by accounting for environmental, social and corporate governance aspects alongside financial performance. Shareholder activism is a prevalent responsible investment strategy that is gradually gaining traction among South African investors. Aim: The primary objective was to gauge the views of selected local institutional investors on the nature of shareholder activism endeavours in South Africa. The secondary objective was to offer suggestions on the way forward for shareholder activism considering rapid technological development and the COVID-19 pandemic. Setting: South Africa offers a well-developed framework for responsible investors. Given their substantial shareholding, institutional investors in particular have considerable power to influence the practices and policies of investee companies. Method: Semi-structured interviews were conducted with 13 representatives of local institutional investor organisations. Thematic analysis was conducted to analyse the primary data. Results: Interviewees mostly engaged in private with investee companies on corporate governance issues. They explained that more information is required to meaningfully engage on social and environmental considerations. Participants indicated that they consider and employ public activism mechanisms if private engagements are deemed unsuccessful. Conclusion: Technology will play an increasingly important role to enhance shareholder activism in future, but also offers various challenges. Although social media might be a valuable avenue to disclose information, it should be cautiously managed. Selective engagement details could be published on institutional investors’ and companies’ websites to enhance transparency regarding the nature and outcomes of engagements. Virtual and hybrid annual general meetings are likely to enable more shareholders to become active owners in future.

Socially responsible investment strategies for the transition towards sustainable development: the importance of integrating and communicating ESG

PurposeRecently, socially and responsible investments (SRI) have constantly grown becoming a highly discussed issue. Therefore, the main purpose of this paper is to better understand if environmental social governance (ESG) criteria integration in investment strategies can support the transition of finance toward a more sustainable growth.Design/methodology/approachAn explorative analysis based on a multiple case study has been conducted and addressed by a content analysis on the Key Investors Information Documents (KIIDs) that the sample companies published for 2020.FindingsThe achieved results demonstrated that the case companies differently integrated ESG into their SRI; thus, if some of them are quite near to a full integration, the others demonstrated less than a full commitment with ESG. This seems to be mainly due to the different approach that asset management companies (AMCs) and/or managers have adopted for integrating ESG criteria.Research limitations/implicationsEven though the achieved results offered some interesting insights for asset managers, the explorative and qualitative nature of this study and the small sample investigated somewhat limits it.Practical implicationsAMCs, consultants and managers in developing and implementing their SRI strategy could be much more focused on the importance of ESG integration for the transition toward a more responsible and sustainable finance (micro-level) as well as a more sustainable development (macro-level).Originality/valueThe paper provides new insights into the essence of SRI strategies and their potential to contribute to sustainable development. Thus, it tries to shed new lights on the role that ESG can have to stimulate and support investment decisions and, in so doing, contributing to make finance grow more sustainable.

An ESG Ratings Free Assessment of Socially Responsible Investment Strategies

Environmental, Social, and Governance (ESG) ratings feature statistical and economic problems undermining their reliability as valid proxies for corporates’ social performance. To overcome this ratings providers specific bias, we focus on global sample of ESG-oriented Exchange Traded Funds (ETFs). Studying passive and pre-committed strategies provide us with several economic and econometric advantages, allowing us to document that Socially Responsible Investments (SRI)-oriented strategies generate significantly higher average stock market returns and liquidity. However, the identified overperformance is concentrated in months of extreme climate activity, while the effect reverses during financial crisis. These findings confirm that investors react to non-pecuniary shocks by increasing the weights assigned to SRI investments in their portfolio, but their preference shifts back towards traditional strategies during economic downturns.

Dynamic and structural characteristics of responsible investment strategies: regional focus

The most significant and actively studied model of investment in recent years is the model of responsible investment. The study was based on data from the Global Alliance for Sustainable Investment for 2012–2018. These data were structured by regions of the largest distribution of responsible investment in the world and taking into account the most well-known investment strategies: screening (exclusion), ESG integration, corporate involvement and stakeholder engagement, norm-based screening, positive screening (best-in-class), sustainable thematic investment, impact investment (impact / community investment). It is proposed to conduct a study of the spread of responsible investing, taking into account its dynamic and structural characteristics. This approach makes it possible to assess the impact of a particular region of responsible investment on the global development of this phenomenon. It is established that the world responsible investment market shows significant growth rates, which are differentiated by regional species. The most dynamically growing region is Japan, as opposed to the traditional leaders – Europe and the United States. Negative screening and normative screening strategies are mostly specific to the European region, the latter being generally specific to the European region. ESG strategies – integration, sustainable thematic investments, and impact investments predominate in the USA. Defining the directions of regional development and key strategies by regions creates a basis for understanding the directions of development of responsible investing in the world and the implementation of world experience in Ukraine.

Faith‐based versus value‐based finance: Is there any portfolio diversification benefit between responsible and Islamic finance?

AbstractThe aim of the study is to explore whether responsible investment and Islamic (Shari'ah‐compliant) investment, which have many similarities in objectives but some differences in how they are implemented, hold any diversification benefits for investors across a variety of investment horizons. We adopt an advanced econometric estimation using MGARCH‐DCC and wavelet using daily returns data between January 1, 1997, and May 22, 2017. We find indications that responsible investment strategies can offer some hedging benefit to Islamic investors and vice versa. Moreover, the returns from this hedging strategy are higher for those addressing a shorter‐term rather than long‐term investment horizon. One exception was that we found diversification benefits for both short‐ and long‐term focused investors during the financial crisis, when the time‐varying correlation were near their lowest point.

Exploring key barriers and opportunities in impact investing in an emerging market setting

Purpose: Impact investing is one of the fastest-growing responsible investment strategies globally. Although more than two-thirds of global impact investments occur in emerging markets, limited research has been undertaken on the topic in an emerging market context. The authors investigated the main barriers and opportunities that impact investors face in the largest impact investment market in sub-Saharan Africa, namely, South Africa. Methodology: Semi-structured face-to-face and telephonic interviews were conducted with 13 South African asset managers and service providers in the local impact investment market. Directed content analysis was used to identify recurrent and contrasting themes. Results: According to the expert participants, the most important barriers centre on the shortage of investment-ready deals and the lack of detailed and clearly formulated social and environmental impact objectives. The interviewees were of the opinion that growth in the local impact investment market was primarily driven by the prospect of earning a financial return whilst generating positive social and environmental impact. Practical implications: Once a clear understanding of the barriers and opportunities is established, it is more likely that effective, context-specific solutions can be developed. The South African impact investment market’s growth prospects could remain stunted until lifecycle support is improved for small- and medium-sized social enterprises to generate more investment-ready deals. Value: The barriers and opportunities highlighted in this paper are not all-encompassing but provide a useful framework for local impact investors and other role players in the market to navigate the complex emerging market business environment. This study, therefore, provides a valuable contribution to the limited body of knowledge of impact investing in South Africa and similar emerging markets.

Does sustainability index matter to the hospitality industry?

Employing the Dow Jones Sustainability North America Index (DJSI) as a proxy for a firm's socially responsible investments, this research analyzes whether DJSI generates short- and long-run impacts on hospitality firms' financial values. Results indicate that due to characteristics intrinsic to the hospitality industry, hospitality firms' financial performance is more sensitive to addition or deletion events, as compared with the performance of non-hospitality firms, whether measured over the short run or long run. In addition, some firm features, including size, Tobin's Q, and institutional ownership, might also intensify the abnormal returns of firms. The findings would throw some light on environmental, social, and governance (ESG) literature and pave the way to develop new socially responsible investment strategies and ESG-oriented practices that help consolidate tourism-related firms' financial performance and positively benefit society. • This research analyzes whether inclusion on the Dow Jones Sustainability North America Index affects firms' financial values. • Hospitality firms' financial performance is more sensitive to addition or deletion events than that of other firms. • Addition events seem to have a less positive effect on non-hospitality firms. • Some firm features might further intensify the abnormal returns of firms.

Defining socially responsible companies according to retail investors’ preferences

The impressive growth of the funds managed following socially responsible investment strategies is a phenomenon that has been analysed from different perspectives. One of the main factors determining such investment strategies, maybe the most important one, is the selection of socially responsable companies, that is, the differentiation between socially responsible and irresponsible companies. Generally, the selection process is performed applying negative screening or positive screening strategies. Negative screening considers irresponsible companies those involved in the production of weapons or alcoholic beverages, following religious criteria. The positive screening approach is much more complex and less transparent. Both methodologies have been critizied as they do not prevent companies performing a clearly irresponsible behaviour to be included in the socially responsable portfolio. Moreover, it is important to stress that the opinion of retail investors is not considered when defining the concept of “socially responsible company”, that is, the opinion of the potential clients of the socially responsible financial products. In this paper we are interested in the opinion of these potential clients regarding negative screening criteria, because we exclude the possibility of retail investors applying complex positive screening approaches. Our results show that compliance with the legislation is a main criterion for potential retail investors. This is an important outcome, as legal compliance is actually not a necessary requisite and non-complying companies are usually included in socially responsible financial products. Regarding negative screening based on the activity sector of the companies, results are more controversial.

The Strategic Role of Local Community and Significance in Sustainable Entrepreneurial Ecosystem Development

Abstract The stimulation of entrepreneurship development is one of the most effective local community developing strategies, therefore, entrepreneurship is regarded as the key initiator of innovation and technological development within a local community. Local community improvement leads to the improvement of the entire entrepreneurial ecosystem it belongs to. In this paper, the role of local community in entrepreneurial ecosystem is regarded through local community investment, since it’s considered one of the socially responsible investment strategies. The focus of the paper is the case study on the example of Cross Border Development Office between the Municipality of Zitiste in the Republic of Serbia and the Municipality of Sakalaz in Romania. The research focuses on the local community investment and the activities of the Office that have led to the improvement of economic and social indicators in the community as an entrepreneurial ecosystem actor

СТРАТЕГІЇ ВІДПОВІДАЛЬНОГО ІНВЕСТУВАННЯ: РЕГІОНАЛЬНО-ВИДОВИЙ РОЗРІЗ

Urgency of the research. The importance of exploring approaches to identifying and disseminating responsible investment strategies is determined by the need to find tools to fund the Sustainable Development Goals at the global level. Target setting. The issues of identification of responsible investment strategies and especially their dissemination become relevant with the reduction of the effectiveness of traditional approaches to investing in modern conditions. Actual scientific researches and issues analysis. I. Vasylchuk, M. Delini, D. Leus, O. Muzychenko, T. Romanyok, I. Shkura and others study a range of responsible investment strategies. Uninvestigated parts of general matters defining. Pluralism of approaches to defining the list of strategies for responsible investment in the works of scientists in comparison with clear approaches of international organizations necessitates their detailing. The research objective. The article aims to conduct a comparative and structural-dynamic analysis of the spread of responsible investment strategies in the world and in the regional context. The statement of basic materials. The expediency of applying approaches to the identification of responsible investment strategies of the Global Alliance for Sustainable Investment is substantiated. The author summarizes the structural and dynamic characteristics of responsible investment strategies at the global and regional levels. The existence of regional differentiation of responsible investment strategies has been established. Conclusions. Comparative analysis of approaches to defining the strategies of reputable organizations in this area, in particular the Global Alliance for Sustainable Investment, EuroSIF and USSIF, Principles for Responsible Investment (PRI), the European Fund and Asset Management Association (EFAMA) allowed us to conclude that there are 7 most significant investment strategies. Dynamic characteristics of these strategies indicate a significant increase in their volume during the analyzed 6-year period for all types of strategies

Efficiency of the Public Pensions Funds on the Socially Responsible Equities of Mexico

In the present work, we test the mean-variance efficiency that Mexican public pension funds would have shown had these invested their local equity portfolio component only in socially responsible stocks. With a daily simulation (from 1 January 2005 to 31 July 2018) of the Standard & Poors (S&P) Mexico target risk indices, we found that there was no significant difference between the more conservative pension funds that invested only in the Price Index and Quotations (IPC) sustainable index against the ones that invested in the conventional IPC. In the case of the more aggressive type of pension funds (those with a higher Mexican equity investment level), a lower mean-variance efficiency would have been observed had these invested in the IPC sustainable index. We also found, with a two-regime Markov-switching analysis, that socially responsible investment would have been better for most of these pension funds during distress time periods. Even if our results do not give strong short-term proof for the use of a socially responsible investment strategy in the most aggressive pension funds, we found that the benefits will be observed in the long-term, due to a better performance during distress time periods and the lag effect of mid and small-cap stocks in the performance.

Sustainability-themed mutual funds: an empirical examination of risk and performance

PurposeThis paper aims to analyze the portfolio characteristics and the performance measures of sustainability-themed mutual funds, compared to ethical mutual funds that implement different sustainable and responsible investment strategies.Design/methodology/approachThe study refers to a European sample of 106 ethical funds and 51 sustainability-themed funds. The monthly performance of each fund is downloaded from Bloomberg for the period from January 1996 to December 2015. By applying a Fama and French (1993) three-factor model, the authors overcome the limits of a capital asset pricing model (CAPM) based-single index model, to compare the performance of the two categories of funds.FindingsSustainability-themed funds do not differ significantly from ethical funds in terms of portfolio attributes, except for market capitalization, age and net asset value. Regarding performance measures, the results shows that sustainability-themed funds have a lower underperformance than ethical funds (as measured by Jensen’s alpha), whereas the samples do not differ in terms of market risk (as measured by Beta coefficient). The idiosyncratic risk of sustainability-themed funds is positively influenced by the specific portfolio strategies. The sustainability-themed funds show a higher concentration in the industrial sector and a lower exposure to financial sector than ethical funds; in terms of geographical strategy, they are more global and international oriented; they mainly focus on small caps and value stocks.Research limitations/implicationsThe different sustainable and responsible investment strategies can be applied simultaneously and in a growing number of possible combinations. Mutual fund managers can consider thematic approach as an efficient opportunity for reconciling financial performance and economic sustainability. It is demonstrated that sustainability-themed funds adopt a portfolio strategy significantly different from ethical funds and from the environmental, social and governance benchmarks. Mutual fund managers implement a thematic specialization without any negative impact on the funds returns compared to ethical funds; actually, with a proper diversified portfolio, they are able to reduce idiosyncratic risk.Originality/valueThe analysis is extremely innovative, especially for the thematic sample. During the past 15 years, literature about sustainable and responsible investment has been focused especially on the differences in terms of risk and performance between socially responsible and conventional funds. This paper, starting from the methodology applied in these studies, wants to compare two different types of socially responsible strategies, with a specific focus on sustainability-themed mutual funds, given their exponential growth in the past few years.