Responsible Investment Research Articles

Sustainable Investments: Return and Risk

Empirical evidence shows that investors and institutions are interested in socially responsible and sustainable investments due to either their values for making a positive impact on the society or because of the perceived rewards and less downside risk of such investments. In addition, a country’s rule of law, culture, values and norms help promote socially desirable and sustainable investments. Furthermore, money flow appears to be larger for firms with high environmental, social and governance scores. Studies generally show a lower cost of capital for socially responsive firms and perhaps a better corporate value. This is due, in part, to lower risk premium demanded by investors. A survey shows that potential investors rank the environment the highest, 79 percent, followed by products with a rank of 48 percent, among other socially desired goals.

Connectedness of global energy markets with global agricultural, natural resources, and socially responsible investments using extended GFI

PurposeThe study aims to investigate the risk transmission from COVID-19 to global agriculture, energy, natural resources/mining and environmentally/socially responsible investments. Additionally, it explores the connectedness of global energy indices with global agriculture, natural resources/mining and environmentally/socially responsible investments. The study develops a new COVID-19-based Global Fear Index (GFI) to achieve the objectives, thus contributing to the prevailing literature.Design/methodology/approachThe data of Global indices are selected from January 2020 to December 2021. The study uses multivariate BEKK-GARCH and TVP-VAR models to explore COVID-19 risk transmission and connectedness between global indices.FindingsSignificant shock and volatility transmissions from COVID-19 to all global indices are observed. Results show that global agriculture, natural resource/mining markets and environmentally and socially responsible investments are safe havens during COVID-19. Furthermore, these global investment choices are barely connected with global energy indices.Practical implicationsPortfolio managers and investors should invest in global indices to gauge the risk-adjusted return during the pandemic and upcoming health-related risks. Investors in energy sectors are advised to diversify the risk by adding safe-haven assets to their portfolios.Social implicationsThe findings shed light on the importance of environmentally and socially responsible investments as a separate asset class where ecologically friendly and socially sentimental investors could invest in diversifying the risk of their portfolios.Originality/valueThe paper offers valuable insights to policymakers and investors regarding asset pricing, risk management and financial market stability during pandemic-type emergencies.

Corporate social responsibility and external disruptions

We propose that corporate social responsibility (CSR) investment serves as an intangible investment in stakeholder relationships to guard against external disruptions to firms' operations and tangible assets. Using a difference-in-differences setting and a database of factory locations, we show that manufacturing firms with higher CSR ratings are much less affected by major natural disasters in terms of operating performance. We then propose two mechanisms through which CSR engagement shields manufacturing firms against external disruptions: employee motivation and customer loyalty. Empirical evidence suggests that CSR helps manufacturing firms survive major natural disasters by motivating employees, which leads to higher post-disaster productivity, and keeping customers, which leads to more stable post-disaster sales.

La Sustentabilidad Empresarial, los informes de sustentabilidad, los índices sustentables y el desempeño financiero

Business sustainability is of great importance today because the context of economic crisis marked by the COVID 19 pandemic has awakened organizations, where the concept of the Triple Bottom Line is exceeded to escalate to the concept of Sustainability. The objective of this work was to outline the way in which sustainability has evolved in the business field, where indexes and reports have been established that allow sizing its impact on financial performance. A documentary investigation was carried out, developing topics such as, Bases of business sustainability, ISO Standards related to the adoption of sustainable practices in companies, Socially responsible investment indices, Evolution of sustainability reports and The relationship between business sustainability and financial performance. The findings allow us to know that sustainability has permeated companies which have adopted ISO standards, as well as sustainability reports, providing information about the sustainable practices they carry out, which allows investors to make informed decisions. It was also found that empirical research has managed to establish the existence of a positive relationship between Business Sustainability and Financial Performance, thus demonstrating the importance of adopting the former to achieve financial success.

ESG in the Sustainability Report and the Impact on Investors’ Choices: A Literature Review

The literature highlights an increase in interest in information on sustainability and CSR policies and highlights an increase in the number of sustainable and responsible investments. Although there are already studies that analyse the impact of ESG on Stakeholders, but more work must be carried out in this area.

Quantile Connectedness Across Socially Responsible Equity Markets of The BRICT Nations

This paper investigates the shock linkages between the socially responsible equity indices of Brazil, Russia, India, China, and Türkiye, by using the quantile connectedness approach that is used by Chatziantoniou et al. (2021), to assess the median-based and tail connectivity, we will analyse daily time series data from April 4, 2018, to March 31, 2023. The outcomes of the static and dynamic analyses can be summarized as follows: for static quantile connectedness, Russia and India are net transmitters of shock at the tails, while China is a net receiver. China and Türkiye are net receivers, whereas Brazil, India, and Russia are net transmitters at the median quantile. Considering the dynamic quantile connectedness assessment, the findings indicate that the magnitude of connectedness significantly increases positive and negative shock connectedness. This suggests that during periods of extreme market volatility, socially responsible equity indices in BRICT nations experience more pronounced shock propagation. This suggests that socially responsible investments are susceptible to contagion and, as a result, provide restricted portfolio diversification advantages during periods of extreme market volatility. The analysis also indicates that there was a substantial rise in the overall dynamic connection during the COVID-19 pandemic and the Russia-Ukraine war.

Extracting minerals for the energy transition – Local data for global decision making

Strong long-term demand outlooks are driving investments in energy transition minerals. New mines must be developed to supply the 34 minerals necessary for low-carbon energy technologies and infrastructure. Responsible investment is critical to ensure that mining for the energy transition does not come at unacceptable social and environmental costs. Investment decisions rely on access to site-level information. Achieving both reliable and sustainable mineral supply chains is a complex proposition that requires deep local-level knowledge for all sites across the supply chain. This paper analyses a global dataset of local disclosures for 444 geolocated mining projects hosting the bulk of future energy transition minerals supply. The dataset captures disclosures related to the interactions between mining projects and their local context and connects a supply source point and its host context to global supply chains. Our analysis reveals the paucity of local-level data, with 37% of analysed records containing no context-related disclosure, and another 30% containing minimal, compliance-centred disclosure. We also find evidence of disclosure not matching reality, e.g. 78% of records of projects intersecting Indigenous peoples land do not have Indigenous people-related disclosures. These findings put into question the capacity of investors and governments to make informed decisions about mining development, including which sites to develop and how. We also analyse the magnitude and types of costs incurred at mine sites and find that 12% of projects face or have faced severe costs originating from interactions with the local context. We stress the need for full local disclosures to ensure responsible governance and investment in the mining sector.

Motivating Corporate Social Responsibility Investment and Social Impact through Relative Performance Information

ABSTRACT Firms often struggle to motivate managers’ CSR performance, and little attention has been paid to how performance evaluation can assist in this effort. We address this gap by examining the effects of relative performance information (RPI) on risky CSR investment decisions. Compared to when no RPI is provided, we find that providing RPI based on the size or impact rate of CSR investments improves performance on the ranked dimension, although effects are weaker in more risk-averse managers. We also find that providing both types of RPI separately may lead to similar performance as providing just one type, and that RPI based on a single composite measure that combines performance dimensions leads to the greatest performance along each dimension. Our study contributes to research and practice by identifying how RPI can motivate larger, more impactful CSR investments and by highlighting the role that managers’ risk preferences can play in these decisions. Data Availability: Data are available upon request.

Why do investors prefer sustainability? A bibliometric review and research agenda

Purpose The study aims to identify the trends in the scholarly works on investors preference toward sustainable investments by synthesizing their knowledge structures. Design/methodology/approach A systematic search approach using PRISMA protocol on the Scopus database was used to generate a sample of 403 publications for the purpose of bibliometric analysis. The study performed a range of analyses, including three-field plot analysis, thematic mapping and cluster analysis using the VOSviewer and Biblioshiny software. Findings The key findings comprise the identification of four clusters within the subject, namely, corporate social responsibility and environmental, social and governance (ESG) investing, ethical investing, green finance and socially responsible investments. This study offers a clear picture of the publishing advancement and research diversification of four selected clusters' research themes, and cluster subthemes. Practical implications The research reveals the social and intellectual structure of the field, which provides the future researchers an insights into emerging themes and provides them opportunities for collaboration as well. The outcomes of the research hold significance for policymakers, governing bodies, aspiring scholars, advocates for the environment and investors. It offers an insightful framework for implementing sustainable practices, balancing profits, and environmental risks and creating value from environmentally conscious research and practice. Originality/value The future direction and extensiveness of research work have been explored using the themes generated. To the best of the authors’ knowledge, this study, which combines the VOSviewer and Biblioshiny tools, is likely the first attempt to provide a thorough bibliometric analysis in the research sphere of investors preferences toward sustainable investments.

Sustainable and responsible investment (SRI) Sukuk: lessons from Khazanah’s Sukuk Ihsan

Purpose SRI Sukuk, with its outcome-based emphasis, aims to align the Islamic finance industry with its original ideals and address criticisms related to form over substance. In Malaysia, while the pioneering Sukuk Ihsan was a “social” sukuk, recent SRI Sukuk issuances have predominantly been “green” or “sustainable” sukuk. This paper aims to evaluate the Malaysian SRI Sukuk market, identifying factors favouring “green” sukuk. It also examines whether structural issues in Sukuk Ihsan deterred subsequent issuers from “social” sukuk. The emergence of SRI Sukuk responds to sustainable development goals and the shift towards a low-carbon economy. Sukuk Ihsan, as the first Shariah-compliant pay-for-success structure, poses complexity and risk management challenges to meet performance criteria. Design/methodology/approach The study used a qualitative method in the form of a critical review of literature, interview sessions with experts and stakeholders who are familiar with SRI Sukuk and Sukuk Ihsan and a case study analysis of Sukuk Ihsan. Findings The popularity of “green” sukuk reflects the growing global environmental consciousness. The main factors driving the popularity of “green” sukuk are the maturity of the market and the existence of a strong supporting infrastructure for “green” issuances while the positive profiling benefits and availability of incentives for “green” issuances also contribute to a lesser extent. The recommendations include the promotion of “social” sukuk by regulators through a focus on establishing a similar supporting infrastructure for “social” sukuk as there are for SRI and standard Sukuk. In addition, issuers of “social” sukuk may want to reconsider the inclusion of key performance indicators (“KPI”) into the structure of future “social” sukuk issuances. Research limitations/implications Although all respondents considered Sukuk Ihsan to be a success, some potential areas of improvement were also noted. These include the structuring of future “social” sukuk issuances with a bigger discount to compensate for the additional risk being assumed by the investor; the need to be more careful in the KPI selection process; and one respondent even went so far as to suggest the possibility of totally removing the step-down feature of Sukuk Ihsan. Practical implications Industry implications of Sukuk Ihsan study include findings that require balancing disclosure and economics by providing additional disclosure requirements for SRI Sukuk that may pose risks without corresponding benefits for issuers. KPI selection and investor confidence should also be properly identified, as KPIs are essential for the pay-for-success model to work successfully. For sukuk holders, findings indicate that any approval for waivers during issuance can impact investor confidence negatively. Investor literacy and impact understanding should also be improved for social Sukuk success. Investors should understand the different risk exposures and evolving impact requirements vital for sustainable growth. Social implications The findings provide significant implications for social impact Sukuk issuance. They include providing a substantial case study for future social impact issuances, based on the pioneering impact of Sukuk Ihsan. Furthermore, Sukuk Ihsan’s unqualified success validates the feasibility of socially responsible sukuk. Despite its early introduction, both tranches being fully subscribed reflects robust investor interest. Stakeholders were also proud of their involvement in such an initiative, viewing it as a significant achievement in creating societal impact. Originality/value Although there have been several prior studies done on Sukuk Ihsan, the focus of those studies was on its structure and the novelty of its “step down” returns structure where investors would receive lower returns if certain key performance indicators (“KPIs”) are met by Yayasan AMIR in the execution of its Trust School Programme. Bearing in mind that the first Sukuk Ihsan has a June 2022 maturity date, and the results of its KPIs were announced in December 2021, to the best of the authors’ knowledge, this is the only documented case study that comprehensively reviews Sukuk Ihsan and identifies lessons learned and/or opportunities for improvement for the benefit of potential SRI Sukuk issuers in the future.

Determinants of Social Responsibility Costs of Listed Manufacturing Firms in Nigeria

The study ascertained the determinants of social responsibility costs of listed manufacturing firms in Nigeria. Specifically, the study determined the relationship between firms' total assets and community development cost; total sales and staff development cost; and total equity and public utility cost respectively of listed manufacturing firms in Nigeria. The population of the study comprised all the 21 listed consumer goods manufacturing firms in Nigeria. Purposive sampling was applied in selecting the 15 consumer goods firms that made up the sample size for the study. Secondary data were collected from the annual reports of the sampled firms over a ten-year accounting period which spanned through 2013 to 2022. The Pooled Ordinary Least Square regression was used in testing the hypotheses. The findings of the study indicated that: there is a significant positive relationship between firms' total assets and community development cost of listed manufacturing firms in Nigeria (p-value = 0.0059); there is a significant positive relationship between firms' total sales and staff development cost of listed manufacturing firms in Nigeria (p-value = 0.0000); there is positive but non-significant relationship between firms' total equity and public utility cost of listed manufacturing firms in Nigeria (p-value = 0.7002). Based on the findings, it was generally recommended in the study that firms should prioritise their investment in social responsibility as their financial metrics progress so as to enhance their reputation and strengthen their relationship with their host communities and stakeholders.

Environmental, Social, and Governance Performance, Platform Governance, and Value Creation of Platform Enterprises

Under the concepts of sustainable development and a sharing economy, the ESG performance of platform enterprises has played a significant role in measuring the operating status and responsible investment of platform enterprises. Platform enterprises have different typical characteristics from traditional enterprises. The mechanisms of ESG and financial performance needs to be further explored. The empirical analysis finds that: (1) the ESG performance of platform enterprises and its S index and G index has a positive impact on corporate financial performance. (2) Media attention plays a positive moderating role between the ESG and ROA. (3) Platform data governance and platform reputation governance are two internal and external paths for platform enterprises’ ESG performance to improve financial performance. (4)There is heterogeneity in the relationship between ESG and ROA in terms of platform enterprise scale and platform type. Based on the above conclusions, this paper provides reference experience for the ESG governance and value creation of platform enterprises.

Who is greener, more social and better-governed? Dual ownership by SRI mutual funds stands out

This study sheds new light on ESG performance and financial characteristics of companies that are constituents of portfolios of U.S. socially responsible investing (SRI) funds. We categorize SRI fund participation into three distinct types: debt-only, equity-only, and dual ownership of debt and equity. Companies with dual ownership tend to be held by relatively bigger and more concentrated SRI funds. Our holdings-based analysis reveals that these investee companies deliver superior ESG performance across all dimensions and have larger size, higher degree of financial safety, and higher profitability compared to those in equity-only or debt-only categories.

Employing behavioural portfolio theory for sustainable investment: Examining drawdown risks and ESG factors

ABSTRACT This study uses behavioural portfolio theory (BPT) within the Markowitz Portfolio Theory framework to enhance portfolio management by focusing on sustainability and risk mitigation during market downturns. It selects portfolios to hedge against market lows using Conditional Drawdown at Risk (CDaR) and Expected Regret of Drawdown (ERoD). These measures help choose securities that perform well during a market decline. This study applies drawdown-based risk metrics to assist institutional investors and fiduciaries in making informed investment and fund management decisions. By merging BPT with Markowitz’s mean–variance framework, selected investments are maintained above a safety threshold, contributing to the portfolio’s overall quality and sustainability. Additionally, by incorporating an Environmental, Social, and Governance (ESG) preference function, the findings suggest that BPT built portfolios meet traditional performance standards and align with socially responsible investment principles, thereby offering higher utility and alignment with investor values focused on sustainable investing.

The Financial Feasibility of Investing in a Sustainability Index in India

ESG is at the center of dialogue for investments, corporate governance and management. It used as an acronym for ‘Environmental, Social and Governance’ factors. The rapid rise of ESG has led to the prominence of socially responsible investing and has created a dual objective for investor’s capital. Researchers have previously studied the volatility of sustainable investments and whether SRI affects portfolio performance. Analyzing the financial feasibility of investing in a sustainability index was done by utilizing the historical data of returns on BSE ESG Index, NIFTY 500 Index and the BSE ESG 100 Index from October 2017 to April 2024. S&P BSE 100 ESG Index was used as a proxy for a sustainability index and the S&P BSE 100 Index was the index used to proxy traditional investments. This study has utilized financial ratios along with EGARCH and Granger causality test to understand the risk-reward characteristics of sustainable investments and compare them with traditional investments to understand whether it is financially viable to be a sustainably responsible investor. T test was conducted to identify whether is a significant difference between the returns of the sustainability index and its parent index. Results suggest that the sustainability index has a lower risk-adjusted return than traditional investments however, there is not a significant difference between the returns of the sustainability index and its parent index. There is a presence of strong persistent volatility in the sustainability index and negative shocks have a greater impact on the volatility of the index. Data also suggests a bi-directional relationship between the S&P 500 ESG Index and India’s sustainability index. The study recommends investors to consider the cost associated with investing in sustainability themed instruments while also taking into considerations the factors which are responsible for volatility of sustainable investments as well as the asymmetrical impact of negative shocks on returns.

Research on the Mechanisms by Which Green Finance Policies Promote Low-Carbon Economic Development

This paper explores the mechanisms by which green finance policies promote low-carbon economic development, analyzing their implementation effects and challenges in China, and proposing corresponding policy recommendations. Green finance, defined as financial activities supporting environmental protection and sustainable development, aims to direct funds towards environmentally friendly and low-carbon projects. It includes green credit, green bonds, green investment funds, and green insurance, and involves providing preferential loans, issuing green bonds, establishing investment funds, and developing insurance products to support green projects and reduce environmental risks. Additional policies such as green incentives, environmental information disclosure, green ratings, and international cooperation further enhance the effectiveness of green finance. The mechanisms by which green finance policies promote low-carbon development include guiding funds to low-carbon industries, optimizing resource allocation, promoting technological innovation, supporting industrial structure transformation, enhancing market competitiveness, and promoting socially responsible investment. Despite significant progress, challenges such as insufficient supply of green finance resources, regional disparities in policy implementation, limited innovation in green finance products, and imperfect information disclosure and regulatory systems remain. The paper concludes with policy recommendations to increase policy support, improve information disclosure and regulatory systems, promote product innovation, strengthen regional coordinated development, and enhance international cooperation.

Governing the Responsible Investment of Slack Resources in Environmental, Social, and Governance (ESG) Performance: How Beneficial are CSR Committees?

AbstractPossessing slack resources enables businesses to invest in innovative and stakeholder-focused initiatives. Therefore, we posit that higher slack resources encourage businesses to allocate these resources to improve their environmental, social, and governance (ESG) performance. Moreover, as a central sustainability governance mechanism, we hypothesize that the corporate social responsibility (CSR) committee supports investing slack resources in ESG initiatives. Using data from Nasdaq-100 firms, we find initial support for a positive effect of slack resources for ESG. However, further analyses reveal that slack resources become detrimental to ESG after an economically relevant threshold, indicating an inverted U-shaped effect of slack resources. Additionally, despite their generally positive effect, we uncover that CSR committees cannot effectively enhance the benefits of low or moderate slack levels for ESG nor prevent the detriments of elevated slack levels for ESG. Therefore, our study significantly contributes to the ongoing discourse surrounding slack resources, ESG, and the usefulness of CSR committees. These findings hold significant implications for ethical resource allocation, urging firms and their decision-makers to reconsider the dual-edged role of slack resources in the unique ESG context and support the CSR committee in realizing its potential for promoting sustainability and ethical practices within the organization.

If the wind blows, adjust your sail: Political ideology, social responsibility, and performance

Drawing on the upper echelons theory and the attention theory, this study investigates the influence of a chief executive officer's political beliefs on the market value generated by corporate social responsibility investments. The empirical analysis on U.S. hotel companies over a 25-year period (1998–2022) reveals that greater misalignment between a chief executive officer's ideology and the national political climate leads to a weaker impact of corporate social responsibility-related activities on the market value. This result is significant because it suggests that chief executive officers' actions are not solely determined by their ideological stance—as the upper echelons theory predicts—but rather by the conflict they experience when the external environment contradicts their ideological beliefs, which is a theoretical extension.

Faktor – faktor yang mempengaruhi keputusan investasi mahasiswa

The study examines how financial literacy, financial inclusion, and financial efficacy impact the investment decisions of economics and business students in Jakarta. It used a quantitative approach and collected data from 105 respondents through questionnaires. The multiple linear regression analysis with Eviews 12 revealed that the three independent variables positively and significantly affect investment decisions, explaining 89.09% of the variation. The findings highlight the importance of enhancing knowledge, access, and confidence in financial management to improve the investment decisions of college students. This study enhances our understanding of the financial behavior of young adults. It has implications for developing financial education programs and policies that promote responsible investment practices among college students. Public interest statements This research offers valuable insights into the factors influencing young people's investment decisions. Understanding the impact of financial knowledge, access to financial services, and confidence in managing money can assist college students in making wiser investment decisions.

Significance of ESG in Farmer Producing Organizations

Farmer Producer Organizations (FPOs) hold immense potential to transform Indian agriculture. However, challenges like low farmer income, climate change, and FPO sustainability persist. This paper explores how integrating Environmental, Social, and Governance (ESG) principles can address these concerns and contribute to a more sustainable and equitable agricultural ecosystem. Despite significant growth, a large portion of FPOs fail within a few years due to factors like inadequate resources and poor leadership. ESG principles offer a solution by promoting sustainable practices, fair labor conditions, and responsible governance. This not only benefits farmers through improved livelihoods and resource efficiency but also attracts socially responsible investors and strengthens stakeholder relationships. Implementing ESG requires a multi-pronged approach. Raising awareness among board members and farmers is essential, followed by developing tailored ESG policies and building capacity in sustainable practices. Collaboration with government agencies and NGOs can provide crucial resources and expertise. By embracing ESG, FPOs can overcome sustainability challenges, enhance profitability, and contribute to a healthier planet. This integration can be a game-changer for Indian agriculture, ensuring food security for future generations. By integrating ESG, FPOs can increase their market competitiveness, attract responsible investments, and contribute to a more equitable agricultural landscape. Implementing ESG requires a comprehensive approach, including awareness building, policy development, capacity building, and strategic partnerships. Ultimately, the adoption of ESG principles can transform FPOs into sustainable and resilient entities, driving positive change in the agricultural sector