Responsible Investment Research Articles

Grazing for dollars: responsible investing for healthy and sustainable animal agriculture in Australia

AbstractInvestments by the global finance sector contribute to industrial-scale agriculture along with its harmful environmental impacts, making their actions significant in supporting or opposing sustainable food systems transformation. Previous research has shown that institutional investors identify animal agriculture as an important consideration with respect to environmental, social and governance (ESG) issues regarding sustainable food systems. This study aimed to explore ways in which so-called ‘responsible’ investors in Australia consider risks related to animal agriculture, and whether existing ESG metrics are ‘fit-for-purpose’ for assessing issues related to sustainable animal agriculture. Nineteen semi-structured interviews were conducted with responsible investors and relevant non-government organisations (NGOs) in Australia. We found that the responsible investment sector lacked mechanisms to recognise the inter-connections between animal agriculture and multiple environmental and social outcomes. Furthermore, we found that investors largely focused on ‘techno’ solutions to the impacts of animal agriculture, such as alternative proteins, through a ‘single issue’ lens. They rarely made connections to other relevant ‘food systems’ issues, such as health. We conclude that holistic approaches are needed to monitor and assess the impacts of animal agriculture in the investment sector and suggest that integrated ‘food systems’ metrics will be necessary to inform these approaches.

Carbon omission and financial market sustainability via government effectiveness: a cross-culture comparison of OECD and Asian emerging economies

PurposeFinancial market sustainability is gaining attention as investors and stakeholders become more aware of environmental, social and governance issues, pushing demand for responsible and ethical investment practices. Therefore, this study aims to investigate the impact of carbon (CO2) emissions from three sources, oil, gas and coal, on the stock market sustainability via effective government policies.Design/methodology/approachThe eight countries belong to two different regions of world: Asian economies such as Pakistan, India, Malaysia and China, and OECD economies such as Germany, France, the UK and the USA are selected as a sample of the study. The 22-year data from 2000 to 2022 are collected from the DataStream and the World Bank data portal for the specified countries. The generalized methods of movement (GMM) and wavelet are used as the econometric tool for the analysis.FindingsOur findings show that the CO2 emission from coal and gas significantly negatively impacts stock market sustainability, but CO2 emission from oil positively impacts stock market sustainability. Moreover, all the emerging Asian economies’ CO2 emissions from coal and gas have a much greater significant negative impact on the stock market sustainability than the OECD countries due to the critical situation. However, the government’s effective policies have a positive significant moderating impact between them, reducing the effect of CO2 emission on the stock market.Research limitations/implicationsThis study advocated strong implications for policymakers, governments and investors.Practical implicationsEffective government policies can protect the environment and make business operations suitable, leading to market financial stability. This study advocated strong implications for policymakers, governments and investors.Originality/valueThis study provides fresh evidence of the government’s effective role to control the carbon environment that provide the sustainability to the organizations with respect to OECD and emerging economy.

Критерії відповідності фінансового менеджменту емітента зелених облігацій

Introduction. A fundamental principle in the green bond market is the financing of projects that have a positive impact on the environment. Socially responsible investors want to be sure that the proceeds from the issuance of these securities are used as intended, and that the projects being financed contribute to the achievement of environmental goals. For this purpose, the relevant international standards have already been adopted on the green bond market. Problem Statement. In the green bond market, manipulation often occurs when the proceeds from the issuance of these securities are allocated to projects that are not actually environmentally friendly, although they are portrayed as such. Compliance of the financial management of the issuer of green bonds with generally accepted standards is always in the focus of attention of socially responsible investors. An urgent task is to measure the compliance of financial management with generally accepted standards, which will affect the future results of the issuer of green bonds in the distribution of income to achieve environmental goals. Purpose of the article is to identify the criteria for compliance of the green bond issuer's financial management with internationally recognized standards. Methods. The following research methods were used: the generalization method (when studying theoretical sources, scientific works of famous scientists and researchers on selected issues); methods of comparisons and synthesis (during the review of international acts, existing practices and standards), the method of analysis (to identify the criteria of compliance of financial management in the green bond market); logical method (for forming conclusions). Results. The article reveals the concept and features of financial management in the green bond market, examines global practices and standards for managing proceeds from the issuance of these securities. The principles and requirements that issuers of green bonds on the global and European markets should follow are summarized. On the basis of the conducted research, the criteria of compliance of financial management in the market of green bonds are singled out. Conclusions. The principles and methods contained in international standards and recommended acts on the green bond market provide a basis for measuring the compliance of the issuer's financial management with internationally recognized practices. The conducted research made it possible to single out the following criteria: 1) the ability to properly select and evaluate projects; 2) confirmation of the targeted direction of income; 3) availability of separate accounting of receipts; 4) organization of control over revenue management; 5) involvement of an independent third party in the control. Identified financial management compliance criteria make it possible to identify the green bond issuer's strengths and weaknesses for further improvement of its internal practices, increase transparency, and improve management processes and foundations. Checking the issuer of green bonds according to each of the criteria on a point basis allows establishing the general level of compliance of its financial management with the expectations of socially responsible investors.

The Impact of Institutional Commitments on Corporate Risk-taking: Evidence from the United Nations Principles for Responsible Investment

Taking the institutions that signed the United Nations (UN) Principles of Responsible Investment (PRI) from 2012 to 2021 as a sample, we study whether the risk-taking of investment targets will be affected when the institutions sign the PRI. The findings demonstrate that when an institution subscribes to the PRI, it significantly decreases its investment target’s degree of risk-taking. After a series of stability tests, such as surrogate variables and propensity score matching method, the main regression results in this paper remain consistent. It has been suggested through mechanism analysis that signing the PRI increases both investment efficiency and information disclosure quality thereby minimizing enterprise risk-taking behavior. Further research shows that the state-owned nature of institutions and higher media attention can reduce the risk-taking of enterprises. This paper provides a new explanatory dimension through which enterprises can reduce their level of risk-taking and offers a theoretical foundation for further expanding the impact of the PRI.

The Role of Environment Social and Governance (ESG) Score To Cost of Debt: Evidence From ASEAN Countries*

ABSTRACTEnvironmental social governance (ESG) disclosure has become an increasingly important component in determining a company's financing cost (cost of debt‐CoD). This phenomenon could be attributed to company reputation development and the rise of socially responsible investing. We contribute to the existing literature by investigating further the causality process of ESG scores to the reduction of CoD particularly in nonfinancial companies in one of the most dynamic world regions: Association of Southeast Asian Nations (ASEAN). To meet our research objective; we applied difference‐in‐difference analysis to a dataset of 135 nonfinancial companies (that published ESG score in Bloomberg) from 6 ASEAN countries, using annual frequency data from 2012 to 2021 (1350 observations). We found that ESG does reduce CoD in the range of 21.3% (measured by interest expense) to 27.7% (measured by credit spread). Our finding is quite solid under an array of robustness checks.

Evolution and relevance of research on Environmental, Social, and Governance factors

AbstractIn the wake of a compelling societal shift and the subsequent widespread response across multiple industries, Environmental, Social, and Governance (ESG) factors have emerged as a pivotal subject in scholarly literature. To gauge the significance of these contributions and facilitate objective exploration in future research, we employ bibliometric techniques. Thus, we identify the relevant authors and journals, and depict the evolution in the themes and pillars of the intellectual framework underpinning the topic. Our analysis covers 594 articles from 2007 to 2022, divided into two distinct periods. In the first period, the pillars are centered on contextualizing theories, the impact in terms of financial‐related performance, and the ethical implications within the domain of corporate social responsibility. In the subsequent period, there is a notable progression towards reinforcing theoretical foundations. The pillars shift towards more practical implications, focusing on challenges associated with investing based on ESG criteria, guiding stakeholders in adapting to this paradigm, and addressing risks tied to its implementation. Financial performance, disclosure in reporting, and socially responsible investments remain crucial matters, and the analysis of the environmental issues outnumber social, and governance ones in both periods. We discuss the potential implications and further lines of research.

Integration of investor behavioral perspective and climate change in reinforcement learning for portfolio optimization

Addressing environmental impact is increasingly imperative for individual investors and large financial institutions, making it a key objective of socially responsible investing. However, there is a noticeable gap in research on integrating sustainability and low-carbon considerations into machine learning-based portfolio optimization. To meet this challenge, this study introduces a Portfolio Emissions Sentiment Attention Aware Reinforcement Learning (PESAARL) model based on the Proximal Policy Optimization (PPO) algorithm to optimize a portfolio of Dow Jones Industrial Average (DJIA) stocks. PESAARL uniquely integrates environmental impact considerations, specifically carbon footprint using the firm level scope 1 and scope 2 emissions data, alongside firm-level investor sentiment and attention, into the investment decision-making process. Through multiple experiments, PESAARL demonstrates significant advantages, in terms of financial and environmental performance, over the benchmarks.

A Relationship Assessment Between Environmental Practices, Corporate Value, and CSR in Sustainability Context

AbstractThis study examines the influence of environmental performance disclosure within corporate social responsibility on company value. It assesses the impact of green intellectual capital (human, structural, and relational), green innovation (product and process), carbon emission disclosure, and eco-efficiency on Price Book Value (PBV). The sample includes 11 companies from the Sri Kehati Index 2018-2022, which apply Sustainable Responsible Investment (SRI) and ESG principles. Using multiple regression analysis, the findings reveal that green intellectual capital disclosure does not significantly affect company value. However, green innovation positively impacts PBV, suggesting its importance in enhancing corporate valuation. In contrast, carbon emission disclosure and eco-efficiency are found to negatively influence PBV. These results highlight the critical role of green innovation in driving company value while suggesting that certain environmental disclosures may lower valuations. The study provides valuable insights into how environmental practices affect corporate value within the framework of corporate social responsibility and sustainability. Keywords:Green Intellectual Capital, Green Innovation, Carbon Emissions Disclosure, Eco-Efficiency, Company Value

Sovereign ESG and Foreign Direct Investment in the GCC: The Amplifying Role of Trade Openness in Economic Diversification

This study examines the relationship between Sovereign Environmental, Social, and Governance (SESG) initiatives and foreign direct investment (FDI) within the context of the Gulf Cooperation Council (GCC) countries from 2000 to 2022. The research explores how national ESG performance influences the attractiveness of these countries to foreign investors, with a particular focus on the moderating role of trade openness. Using a comprehensive panel data analysis, the study finds that strong SESG frameworks are positively correlated with higher FDI inflows, with trade openness amplifying the positive impact of SESG. Additionally, the use of Instrumental Variables (IV) estimation addresses endogeneity concerns, further confirming the robustness of the results. Moreover, the analysis reveals that trade openness amplifies the positive impact of SESG on FDI, suggesting that GCC countries with liberal trade policies and robust ESG practices are more successful in attracting sustainable and responsible investments. These findings contribute to the growing body of literature on ESG and FDI, offering valuable insights for policymakers seeking to enhance economic growth through strategic investments in sustainability and governance. The findings offer valuable insights for policymakers in aligning SESG frameworks with global ESG standards and leveraging global liquidity conditions to enhance FDI inflows, particularly in light of ongoing economic diversification efforts in the GCC.

How Do Socially Responsible Investment Funds Go Green? The Influence of Investment Styles and managers' Experience

ABSTRACTWe provide an holdings‐based analysis of socially responsible investment (SRI hereafter) funds' greenness and its determinants in Europe over 8 years (2015–22). To this end, a segmentation of SRI funds by greenness degree based on k‐means clustering is developed. Our results reveal that SRI funds' greenness depends on specific investment styles and the salient experience of managers in SRI. We verify that greening an SRI fund implies a higher stock selectivity leading managers to underweight their portfolios with fossil fuel stocks and raise the weight of green stocks once SRI market regulations in Europe have been implemented. Also, we find that active investment styles make SRI funds greener. Moreover, we provide evidence of counteracting experience effects provided that the more (resp. less) the manager is experienced in SRI (resp. mutual fund industry), the greener the fund is. In addition to those experience effects, we detect a gender diversity effect provided that a greater gender diversity in fund management teams contributes to increase SRI funds' greenness. Overall, our findings support the argument that the experience and abilities of fund managers are important factors for investors to consider when they choose SRI funds notably because skilled professionals with more experience in SRI are more likely to adapt to regulatory shifts.

The Influence of ESG Factors on Portfolio Performance Based on the Perspective of Markowitz Portfolio Theory

Abstract: In this paper, the inclusion of Environmental, Social, and Governance (ESG) factors in portfolios is investigated to determine their impact on portfolio performance and its mechanism. Based on the data collected by Bloomberg for 10 stocks from 2003-2023 and Markowitz's portfolio model, it is found that: (1) the inclusion of ESG constraints negatively affects portfolio performance; (2) the inclusion of ESG constraints shifts the GMVP to the right and reduces the convexity of the efficient frontier, thus lowering the portfolio's performance. This study enriches the literature on the factors affecting portfolio performance as well as responsible investment and ESG investment, and is of value to investors or organizations in making investment strategy choices.

The Impact of ESG Standards and Investment : Global Trends and Practices

In recent years, ESG (Environmental, Social, and Governance) investment has significantly integrated into investment strategies worldwide. The concept of ESG investing is not merely a fleeting trend but rather an essential tool for investors looking towards sustainable and responsible investment practices. With the evolution and adoption of ESG investments in the global market, a thorough examination of ESG investment practices reveals valuable insights. Nowadays, in economic landscape, the emphasis on ESG factors in investment decisions continues to grow, underscoring the importance of responsible investing practices in fostering long-term value creation and societal impact. This study offers noteworthy recommendations regarding ESG investment standards, aiming to drive improved ESG performance within enterprises. By adhering to robust ESG criteria, organizations can access enhanced financial prospects, paving the way for them to garner increased social recognition. Besides, this paper also put forward countermeasures and suggestions for China's ESG to improve China's ESG information disclosure system and the awareness of ESG.

Socially responsible investments inside out: a new conceptual framework for investigating retail investor preferences

Socially responsible investments inside out: a new conceptual framework for investigating retail investor preferences

Toxic Chief Executive Officers; Environmental, Social, and Governance Institutional Investors as Watchdogs; and the Labor Market Outcomes

I examine changes in chief executive officer (CEO) labor market outcomes following corporate environmental failures. CEOs of firms subject to Environmental Protection Agency enforcements experience a decline in labor market opportunities as outside directors and a higher likelihood of dismissal as CEOs. They also receive less shareholder support in directorial elections. These effects are mostly visible in recent years and in firms with significant socially responsible investments (SRIs), and they are robust to using state environmental regulations for identification. Shareholders exhibit particular concern over environmental violations that may subject firms to future legal liabilities. Overall, these results point to significant reputational repercussions of environmental failures to CEOs and the disciplinary role of SRIs. This paper was accepted by Camelia Kuhnen, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.02372 .

Institutional investment in addictive industries: an important commercial determinant of health.

The production of addictive commodities is subject to a range of commercial determinants. There has nevertheless been a gap in understanding how investments into addictive commodities may function as commercial determinants. Institutional investors can yield important financial power with their investment decisions. Many investors apply responsible investment (RI) policies to address environmental, social, and governance concerns. Negative screening is used to exclude certain sectors or companies from investment portfolios, mainly for ethical concerns. Negative screening also affects investment into tobacco and other addictive industries. This article investigates RI policies toward addictive industries among institutional investors that are signatories of the Tobacco-Free Finance Pledge (TFFP; N = 161). The TFFP is an initiative created in 2021 to de-normalize tobacco-related investments. The mixed-method study uses descriptive statistics to quantify the extent and scope of exclusion policies as well as institutional and geographical profiles of investors, and a qualitative analysis of the justifications for these exclusion policies. Some TFFP signatories apply negative screening to other addictive industries (gambling: 35%; alcohol: 24%; cannabis 12% of signatories). There are important differences in the applied exclusion thresholds, with only 47% of TFFP signatories applying a zero-tolerance policy to tobacco. Thresholds are higher for other addictive industries. Signatories also differ in terms of their geographical and investor profiles. Justifications pertaining to compliance with international standards and reputational risks were the most common. Addictive industries, such as tobacco, alcohol, gambling, and recreational cannabis, are increasingly excluded by investors. However, different understandings of RI influence how sector exclusions are implemented. Divesting from tobacco and other addictive industries is a crucial step toward a public health approach that prioritizes population health over financial profits. Prominent institutional investors are influential opinion leaders who can change the behavior of other investors and de-normalize controversial industries and reduce or prevent harm.

Research on the Impact of ESG Performance on Stock Price Volatility of Enterprises: Empirical Evidence from A-share Listed Companies

As socially responsible investment and sustainable development gain traction, the ESG performance of companies is increasingly attracting investor and public attention. ESG ratings help identify responsible firms, enabling assessment of their contributions to sustainable growth.This article examines Shanghai and Shenzhen A-share data, focusing on the impact of ESG performance on stock price volatility. Key findings include:A significant negative correlation exists between stock price volatility and ESG performance; higher ESG ratings correspond to lower volatility;he nature of property rights affects this relationship, with non-state-owned enterprises benefiting more from ESG performance in reducing volatility than state-owned enterprises;Policy uncertainty in a company's location significantly moderates the relationship, with greater uncertainty intensifying the negative impact of ESG performance on stock price volatility.This research enhances understanding of the economic consequences of ESG performance and helps investors recognize its value, improving capital allocation efficiency.

Socially Responsible Investment: A Bibliometric Analysis

Socially responsible investment is one of the emerging investment themes that aim to achieve financial goals while being aware of and sensitive to the environment, society and governance. Several studies have empirically explored the field of socially responsible investing and its benefit to investors, society and the economy as a whole. However, bibliometric studies that organise the production in this field are still very scarce. The research attempts to map socially responsible investment studies at the global level that are indexed by Scopus using a bibliometric analysis that identifies trends, the state of the art and other indicators by monitoring the articles published between 2012 and 2022. A collection of 234 research studies was obtained. With the help of the VOSviewer programme, the data were processed and the outcomes were visually represented. The research examined the simultaneous occurrence of publications by year, publications by author, publication by journal, keyword trends, co-citations and bibliographic coupling. It indicates that the literature on socially responsible investing is growing at a quick pace. There are several prolific authors in this field having more than 100 citations each. In this context, the United States is the leading nation. This study highlights knowledge gaps and future directions in the field of socially responsible investment while offering insight into the current state of the art.

The Impact of Responsible Investment on the Banking Performance in the small and medium Banks

The purpose of the study is to study the impact of responsible investment on the banking performance in the small and medium banks. This study used the secondary data by using 129 banks from 2018 t0 2023 and the OLS are utilised as a regression. The study utilized the statistical software STATA to test the relation among the variables. We found a positive and significant correlation between the responsible investments on the banking performance. Finally, appropriate recommendations were presented to improve the quality responsible investment on the banking performance in Asian Banks. The study concluded that the impact of investment on the performance of banks utilizing the statistical analysis program shows that there is a statistically important influence of investment on the bank performance of the financial institution. Hence, it is the responsibility of the institution to distinguish among the several investment options, with the goal of starting an investment construction in the institution that is composed and in accordance with the economic limits, and capable of enhancing its goals. In light of the findings extended, the study obtainable a number of references, the most significant of which is the essential for banks in specific and firms in overall to strengthen investment processes in the field of information technology payable to its significance in enhancing services and raising bank performance. The findings of the study will support decision-makers recognize the significance of investment part. The next are the most significant results. We find that the values of banks' investments are mostly from investments.

Socially responsible investment funds and firm performance improvement

Socially responsible investment funds and firm performance improvement

The power of religion: Islamic investing in the lab

Faith-based mutual funds have recently become a growing corner of the mutual fund industry. Morality and ethics are thought to exert an influence on investors' decisions in this segment, though their role in driving such investments is not clear as these funds are also attractive due to their distinct risk-return profile. If non-pecuniary motives are predominant, investors in such funds may be less sensitive to financial performance, resulting in different fund flows patterns relative to conventional funds. This paper fills the gap in the literature, by providing an express linkage between religious preferences and investment in an Islamic fund. Using an incentivized lab experiment, we compare the extent to which investors with religious preferences are likely to accept inferior financial performances to pursue investments aligned with their religious preferences. We show that those with stronger religious preferences are more likely to stick with their investment in Islamic funds when these funds underperform. We do not find that social preferences play a similar role in socially responsible funds, and we find that investors prefer religious investments over socially responsible investments, providing strong evidence that religious investors do not view socially responsible funds as substitutes for Islamic funds.