Socially Responsible Investment Research Articles

Exploring the market efficiency of Indian socially responsible investment (SRI) indices

Exploring the market efficiency of Indian socially responsible investment (SRI) indices

The Innovation Performance of Socially Responsible Investment from Stakeholders’ Perspective: Evidence from STAR MARKET

From the perspective of stakeholders, this paper empirically examines the impact of corporate socially responsible investment (SRI) and various dimensions of SRI on their innovation performance, taking Chinese science and technology innovation board (STAR)listed companies as samples. The results show that the social responsible investment of STAR MARKET enterprises has a significant positive impact on innovation performance, while the impact of various dimension’s social responsible investment on innovation performance is heterogeneous, the specific performance is as follows: social responsible investment in investors, employees, customers and government helps to improve the innovation performance of the enterprises, however, social responsible investment in the community will have a negative impact on innovation performance.

Millennial behavioral intentions toward socially responsible investment: an application of norm activation model in a developing country

Purpose Sustainable financial practices are integral to achieving the United Nation’s development goals that necessitates the collaborative efforts of both corporate and investors. This study focuses on investors’ pro-environmental personal norms (PN) along with hedonic values on socially responsible investment (SRI) intentions, which could help in understanding investors’ responsiveness to corporate Environmental, Social and Governance efforts. Design/methodology/approach The sample for this study included 415 responses from young millennial investors, using a cross-sectional research design. A two-step structural equation model was used to analyze construct reliability and validity and to test the hypotheses and overall model predictability. The mediating role of ascribed responsibility (AR) between the awareness of consequence (AOC) and PNs was investigated. Findings These results indicate that AOC and AR substantially affect PNs. PNs based on AOC and AR was found to be significant but scored lower than hedonic considerations for SRI. In addition, the relationship between AOC and PNs exhibited a full mediation effect on AR. Practical implications These findings suggest that investors are environmentally conscious when aware of the repercussions of their actions. They feel accountable, even when making financial choices. Fund managers might include more environmentally responsible companies in their portfolios and the government could offer tax incentives to attract investors. The active economic participation of an increasing number of pro-environmental investors can improve the macroeconomic climate. Originality/value This is the first study to use the norm activation model for pro-environmental behavior in a financial setting. Most previous studies have focused on social norms to showcase individuals’ obligation and responsibility for a good cause. However, this study demonstrates the importance of personal moral obligation in shaping societal norms. Hedonism is a new dimension in the context of responsible investment.

Dynamic linkages and spillover effects of biodiversity risk in socially responsible investment and commodity markets.

This study employs a novel biodiversity risk measure, developed through textual analysis, to examine how biodiversity risk affects socially responsible investment (SRI) and commodity markets. Biodiversity-related financial risks, arising from ecosystem degradation, represent an emerging and underexplored dimension of market risk, particularly for investors seeking sustainability-aligned portfolios. Our analysis reveals that both SRI equity and commodity indices consistently exhibit negative time-varying correlations with biodiversity risk, with correlations as low as -0.62 for the FTSE4Good US 100 and -0.53 for the FTSE4Good Global 100. Similarly, commodities like silver, gold, crude oil, and wheat also show negative correlations with biodiversity risk. These findings indicate that neither asset class serves as a reliable hedge against biodiversity-related shocks. Furthermore, biodiversity risk has a significant long-term spillover effect on SRI equity and commodity market returns. As biodiversity risk increases, it strengthens the connectedness between these markets, thereby amplifying the transmission of risk across them. These findings highlight the need for new risk management strategies and regulatory frameworks that account for biodiversity risk, opening new research pathways in finance and environmental sustainability.

Corporate misconduct and corporate social responsibility: the roles of CEO incentives and institutional ownership

Purpose This study aims to examine why executives increase investments in corporate social responsibility (CSR) as a strategic action to protect their firms’ reputation from the possibility of a contagion effect following CSR-related corporate misconduct in the industry by drawing on an impression management perspective. This study also examines internal and external governance mechanisms as boundary conditions. Design/methodology/approach The sample includes panel data of firms listed in the S&P 500 index from 2009 to 2013. The authors used firm fixed-effects models to test the hypotheses. Findings The results show that recent CSR-related corporate misconduct occurred in other firms, inducing executives to increase investments in CSR. Moreover, internal and external governance mechanisms, which are CEO incentives and institutional ownership, moderated the relationship. Originality/value This study contributes to prior literature on the factors influencing CSR at the multilevel of analysis by examining how recent CSR-related corporate misconduct in the industry interacts with corporate governance mechanisms as boundary conditions to influence firm commitment to CSR.

Responsible Capital: The Evolution and Performance of ESG Investing

Environmental, Social, and Governance (ESG) investing has rapidly evolved now into a critical component of global investment strategies, despite its roots in Socially Responsible Investing (SRI) dating back over two centuries. ESG gained prominence in the 1980s and was formally recognized in 2006 by the United Nations Principles for Responsible Investment (PRI), aligning it with global frameworks such as the Sustainable Development Goals (SDGs) and the Paris Climate Agreement. This paper reviews the evolution of the ESG investment ecosystem, examining key contributors, including regulators, fund managers, corporations, and rating agencies, and their roles in promoting ESG adoption. Recent regulatory initiatives, such as the U.S. SEC's ESG disclosure rules, the European Commission's Sustainable Finance Disclosure Regulation (SFDR), and India’s Business Responsibility and Sustainability Reporting (BRSR) framework, represent significant efforts to streamline ESG reporting and reduce greenwashing. However, the lack of harmonized global standards and inconsistencies in ESG reporting and scoring methods remain critical challenges. This study analyses the performance of leading ESG funds in the U.S. and India over a four-year period, benchmarking their returns against major market indices. Additionally, it explores the correlations between ESG fund performance and market benchmarks, as well as the similarities in stock holdings between ESG and non-ESG funds. The findings reveal that while ESG funds perform comparably to or below traditional indices, significant gaps persist in defining ESG criteria and measuring performance effectively. The paper concludes with a call for global harmonization of ESG reporting standards and scoring methodologies to ensure consistency, transparency, and investor confidence. As ESG investing is poised for substantial growth, establishing clear definitions and robust frameworks will be essential to unlocking its potential as a transformative force in sustainable finance

Timing corporate social responsibility investments: A dynamic investment model and empirical evidence

Timing corporate social responsibility investments: A dynamic investment model and empirical evidence

Responsible Capital: The Evolution and Performance of ESG Investing

Environmental, Social, and Governance (ESG) investing has rapidly evolved now into a critical component of global investment strategies, despite its roots in Socially Responsible Investing (SRI) dating back over two centuries. ESG gained prominence in the 1980s and was formally recognized in 2006 by the United Nations Principles for Responsible Investment (PRI), aligning it with global frameworks such as the Sustainable Development Goals (SDGs) and the Paris Climate Agreement. This paper reviews the evolution of the ESG investment ecosystem, examining key contributors, including regulators, fund managers, corporations, and rating agencies, and their roles in promoting ESG adoption. Recent regulatory initiatives, such as the U.S. SEC's ESG disclosure rules, the European Commission's Sustainable Finance Disclosure Regulation (SFDR), and India’s Business Responsibility and Sustainability Reporting (BRSR) framework, represent significant efforts to streamline ESG reporting and reduce greenwashing. However, the lack of harmonized global standards and inconsistencies in ESG reporting and scoring methods remain critical challenges. This study analyses the performance of leading ESG funds in the U.S. and India over a four-year period, benchmarking their returns against major market indices. Additionally, it explores the correlations between ESG fund performance and market benchmarks, as well as the similarities in stock holdings between ESG and non-ESG funds. The findings reveal that while ESG funds perform comparably to or below traditional indices, significant gaps persist in defining ESG criteria and measuring performance effectively. The paper concludes with a call for global harmonization of ESG reporting standards and scoring methodologies to ensure consistency, transparency, and investor confidence. As ESG investing is poised for substantial growth, establishing clear definitions and robust frameworks will be essential to unlocking its potential as a transformative force in sustainable finance

Unveiling the link of country compliance, risks, and cost of capital in socially responsible investing

The study provides empirical evidence on the cost implications of socially responsible investing (SRI) in relation to Environmental, Social, and Governance (ESG) preferences. Specifically, it examines whether socially responsible investors incur higher costs to meet non-pecuniary goals and how government involvement can offer rewards to socially responsible investors in supporting the realization of the United Nations’ Sustainable Development Goals (SDGs). Using panel data regression, this study analyzes ESG scores and financial and return data of 1,450 firm-year observations in ASEAN-5 countries over the period 2015–2022. The findings reveal that firms implementing ESG practices experience an increase in their cost of capital (CoC), supporting the notion that ESG investment requires a sacrificial cost. Even firms with low operational risks face rising CoC when implementing ESG principles. However, the study also finds that firms located in countries with better government effectiveness and stronger control of corruption benefit from a reduction in CoC, despite ESG implementation. Conversely, country risks, particularly those related to environmental pollution, exacerbate the CoC for firms adhering to ESG criteria. Overall, the results suggest that while country-level governance can reward socially responsible investors by mitigating CoC, country risks such as pollution pose additional burdens, highlighting the need for government intervention to incentivize SRI and align it with global sustainability goals. AcknowledgmentThis research was funded by the Indonesian Ministry of Education, Research, and Technology (DRTPM), Fundamental Research Grant in 2024 [0609.10/LL5-INT/AL.04/2024,359/D.01/LPPM/2024].

What drives green banking operations in Bangladesh? Findings from PLS-SEM and BSEM

PurposeEnvironmental threats are becoming severe in developing and undeveloped countries. It urges to know how green banking operations can foster sustainable development in these regions. This study aims to provide empirical evidence of the determinants of green banking operations in Bangladesh.Design/methodology/approachBased on the socially responsible investing (SRI) theory, this study examined the hypothesized relationships using a partial least square structural equation modeling (PLS-SEM) approach. The Bayesian SEM (BSEM) through a Markov Chain Monte Carlo (MCMC) approach was also used to validate the study's first-order model.FindingsThe findings show that sustainable innovativeness, green investment and green banking policy substantially and positively change green banking operations. Notably, green investment is the most influential predictor of green banking operations, driving banks to establish sustainable economic systems within the country.Practical implicationsThe findings offer valuable guidance for scholars, financial institutions, policymakers and bank managers to develop and implement effective strategies for green banking operations. These strategies may significantly contribute to achieving the sustainable development goals (SDGs) in Bangladesh.Originality/valueThis study is ground-breaking in associating sustainable innovativeness and green banking operations from a developing country. It enriches our understanding of green banking, aligning with existing literature. Additionally, PLS-SEM and BSEM provide strong validation of the proposed theoretical model.

Strategic timing of corporate social responsibility investments under reputational risk

We analyze a company’s corporate social responsibility (CSR) investments from a real option perspective to determine the value of the CSR investments and the optimal time to invest in CSR, taking into account reputational risk. Previous studies on CSR investments as real options often assume that companies can invest in CSR solely at the time of maturity and that investment costs are known at the outset. Our study extends this research by incorporating realistic viewpoints: Companies can invest in CSR at multiple points in the future; postponing CSR investments may result in reputational losses; and the costs associated with such investments undergo stochastic evolution. We determine the value of CSR investments and answer the question of when to optimally invest in CSR. We examine a real-world example of the palm oil scandal involving Sinar Mas and Nestlé in 2008-2010 and explain why Nestlé repeatedly postponed investing in CSR, i.e., delayed the termination of its contract with Sinar Mas.

Climate policy uncertainty, corporate social responsibility and corporate investments of the energy firms

Climate policy uncertainty (CPU), driven by the need to address climate extremes and environmental degradation, significantly impacts the strategic corporate investments (CI) of energy firms. This study examines the influence of CPU on CI within the energy sector, with a particular focus on the moderating role of corporate social responsibility (CSR). Utilizing an empirical approach and a dataset of U.S. energy firms, the research reveals that CPU negatively affects CI, even after controlling for firm-specific factors such as size, financial leverage, and profitability. The study also uncovers a complex relationship between CSR and CI under conditions of CPU. While CSR is beneficial for firms' long-term growth and financial health by promoting sustainable practices, it can also intensify the negative impact of CPU on CI for firms with limited financial resources.The findings highlight the critical need to investigate the interplay between CPU, CSR, and CI in the energy sector. This research contributes to energy economics by providing insights into how CPU and CSR shape CI, offering a nuanced perspective on the dual role of CSR in the context of CPU. The results are of academic significance and have practical implications for corporate strategy, policymaking, and investment decisions in an industry central to global climate action and economic progress.

Start doing the right thing: Indicators for socially responsible start-ups and investors

This paper explores the gap in the literature on social responsibility guidance for start-ups and start-up investors. It begins by evaluating research conducted in two different fields (namely, socially responsible investment (SRI) and responsible research and innovation (RRI)) and how they can guide social responsibility in STEM (Science, Technology, Engineering, Mathematics) start-ups. To do this, we evaluate an industry-standard SRI catalogue of metrics - the Global Impact Investing Network's (GIIN) Impact Reporting and Investment Standards (IRIS+) - and indicators from 12 EC-funded RRI projects. Based on this analysis, we propose a framework of 24 indicators to assess the social responsibility of start-ups and investors. The purpose of our framework is twofold: firstly, to provide clear guidance for start-ups aiming to implement socially responsible behaviours, and secondly, to provide start-up investors with criteria to identify if start-ups are socially responsible. While the indicators are phrased in a prescriptive way for start-ups, they can also be used by investors to identify if start-ups are implementing the indicators in practice.

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.

Sustainable Finance Models: Building a Profitable and Responsible Business Economy

Sustainable finance models have become essential in building a profitable and responsible business economy that addresses both economic growth and environmental sustainability. This article explores various sustainable finance models, including green bonds, impact investing, and socially responsible investment (SRI), analyzing their role in promoting financial returns alongside positive environmental and social outcomes. The study reviews the integration of sustainability principles into financial decision-making and highlights the growing demand for sustainable investments from institutional investors and consumers. Findings suggest that sustainable finance not only offers profitable opportunities but also mitigates risks associated with environmental degradation and social inequality. The article discusses challenges such as the need for standardized metrics, regulatory frameworks, and transparent reporting to ensure the credibility and effectiveness of these models. By examining case studies from various sectors, the research demonstrates how sustainable finance can drive innovation, enhance corporate responsibility, and contribute to long-term economic stability. The article concludes by providing recommendations for policymakers and financial institutions to further develop and scale sustainable finance practices, fostering a more resilient and responsible business economy.

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.

Terrorist Attacks, Corporate Social Responsibility, and Firm Value

Synopsis Research problem According to the World Economic Forum, terrorism is one of the main managerial concerns for companies worldwide. However, there is surprisingly scant research on how terrorist attacks impact managerial decision-making. To fill this gap, we investigate how terrorist attacks influence firms’ socially oriented activities, as measured by their investments in corporate social responsibility (CSR). Motivation or theoretical reasoning In light of the crucial role of CSR in financial markets and the growing apprehension regarding terrorism risk, this study explores whether and to what extent firms’ CSR investments contribute to the resilience to terrorism risk. The motivation for our research question is grounded in the idea that terrorist attacks create a unique set of circumstances that prompt firms to reconsider their socially oriented initiatives. We argue that firms impacted by such events tend to recognize the importance of demonstrating commitment to social responsibility in the aftermath of a crisis. Overall, the theoretical underpinnings of this study revolve around the notion that CSR becomes a strategic response for firms affected by terrorism, through which they address various stakeholder concerns, maintain legitimacy, and strategically manage their public image in the aftermath of a crisis. The test hypotheses We empirically examine two key research questions in this study. First, we examine the effect of terrorist attacks on the CSR investments of publicly traded firms. Second, we examine whether and how the increase in CSR investments of publicly traded firms after terrorist attacks affects firm value. Target population Our study extends the limited research on the impact of terrorism on capital markets, which is an area of great concern to various stakeholders, including shareholders and corporate managers. The findings will also help researchers understand the determinants of CSR and the potential channels through which CSR creates value for shareholders. Adopted methodology Using a multivariate regression model and controlling for all other determinants of corporate CSR investment documented by prior studies, we test the effect of terrorist events on firms’ CSR investment. To reduce the concern that a growing awareness of the importance of CSR may explain the changes in firms’ investment in CSR over time, we use a difference-in-differences research design. Analyses Using a sample of 53 major terrorist attacks occurring in the U.S. between 1994 and 2015, this study examines the causal effect of terrorist attacks on firms’ CSR activities. Findings Our findings indicate that public firms located in close proximity to terrorist attacks (i.e., the impact firms) substantially increase their investment in CSR following those terrorist events, and that the increase in CSR investment is positively associated with firm value. We further observe a strengthened association between increased CSR and firm value when the CSR efforts of the impact firms attract greater media attention. In conclusion, our findings substantiate the hypothesis that firms exposed to higher levels of terrorism risk are more inclined to enhance their CSR investments. This inclination is driven by the dual impact of CSR efforts: not only do they contribute to bolstering stakeholders’ confidence in firms’ future performance, but they are also linked to increased returns in the aftermath of a terrorist attack.

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.

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.

Do passive investors influence corporate social responsibility? A risk‐management perspective

AbstractThis paper examines the impact of passive investors on Corporate Social Responsibility (CSR) through the lens of a risk‐management view of CSR, which emphasizes its insurance‐like effects in adverse corporate events. Since passive investors have diversified away most idiosyncratic risks, we predict that they demand less CSR as a strategic approach to manage risks. Using the annual Russell 1000/2000 index reconstitution as an instrument for passive investor ownership, we document evidence consistent with our prediction. The negative effect is more pronounced among better‐diversified passive investors and firms that are not in CSR‐sensitive industries. We further show that passive investors hold back CSR activities through the channel of “voice” by reducing the number of socially responsible investment (SRI) proposals.