Socially Responsible Investment Research Articles

Resilience of ethical and nonethical stock during COVID-19 crisis: a case of Indonesia Stock Exchange

Purpose This study aims to empirically investigates the effect of the COVID-19 pandemic on ethical and nonethical stocks in Indonesia. Ethical stocks which are characterized by moral-based companies’ activities and lower debt are expected to have better resilience during the COVID-19 crisis compared to nonethical stock. Design/methodology/approach This study observes 589 firms of ethical and nonethical stock during sample periods ranging from March 2, 2020 (first case announced) to June 30, 2021. Panel regression, with some control variables, was applied. Findings Testing firms in Indonesia revealed a significant difference in stock resilience, in which ethical stock has a better resilience compared to nonethical, with Islamic socially responsible investment (SRI) stock having the highest resilience, followed by Islamic stock and then SRI stock. This study documents a significant effect of some financial criteria on the stock resilience, namely, return market (RM), market capitalization (MCAP) and share turnover (TURN). Overall, after splitting the sample into different time horizons, this study consistently reveals that ethical firms have better resilience compared to nonethical stocks. Research limitations/implications This study makes several contributions to the literature on Islamic finance, especially concerning Islamic screening with SRI factors. In practical terms, this study supports the argument that focusing on integrating environmental, social and governance criteria in sharia screening will improve the quality of Islamic firms. The “Islamic” label is not only a marketing label but also a quality certification. Originality/value This study can be used as a reference for developing Islamic finance more focused on sustainability issues including socioeconomic and human development by improving the quality of screening of Islamic firms. Therefore, this study suggests that the establishment of Islamic SRI index is very crucial and significant to promote ethical-based investment.

Motivations for Socially Responsible Investing: The Impact of Attitudes, Subjective Norms, and Financial expectations

This study looks forward to exploring and understanding what the reasons for the desire of retail investors in might be making Socially Responsible Investments (SRI) in the Chinese stock market and to get an estimate of how valid the theory of reasoned action (TRA) could be. This is intended to look at how such factors as attitude, subjective norms, financial expectations, and risk propensity influence investors to engage in SRI in China. This research builds on previous studies that introduced financial expectations as a crucial new construct, enhancing the depth and rigor of TRA model in examining investment intentions. This assumption posits that investors comprehensively consider the investment situation, weighing not only its societal impact but also its financial returns, and only after considering these outcomes comprehensively will they make decisions on SRI. Risk propensity has been used as moderator in this research model relationship. Whether risk propensity influences the association between attitude, subjective norms, and financial expectations with investment intentions has been test in this study. The study results show risk propensity plays a significantly moderate role in relations of attitude, subjective norms, and financial expectation to intentions with the analysis indicating a positive effect. Its results will be able to provide more reference for the SRI studies and a new angle for capital market researchers, market information providers, and investors.

JUST Capital

The case examines the development and launch of an exchange-traded fund (ETF) based on JUST Capital's socially responsible corporate ranking methodologies. The case provides a market overview of Environment, Social, and Corporate Governance (ESG) and socially responsible investing (SRI), what has driven growth in those areas worldwide, and several best-practice investment approaches. Following the overview, the case describes the founding and development of JUST Capital, explores JUST Capital's ranking methodologies, and presents the decision point faced by the CEO: requisite selection of one of three strategies in order for JUST Capital to generate “self-sustaining” revenue.

The Influence of Corporate Social and Environmental Responsibility and Information Technology Investment on Company Value with Corporate Innovation as a Moderation

This research aims to determine the influence of several variables, namely (1) CSER and (2) IT investment, on company value, which is moderated by the company innovation variable in mining sector companies listed on the BEI in 2018 - 2022. The population in this study is all mining companies, as many as 76 companies. Sampling used purposive sampling with certain criteria and obtained a sample of 9 companies multiplied by five years of observation to become 45 financial reports. The data collection technique used is a documentation study that analyses the financial reports of mining companies that meet the sample criteria according to the needs of the data to be processed. Data were analysed using the STATA application. The research results found that CSER and IT investment had no effect on company value; company innovation was not able to strengthen the influence of CSER on company value, while company innovation was able to strengthen the effect of IT investment on company value. This research was also conducted on mining companies, considering that the mining sector is closely related to the environment. According to the data previously presented, the value of companies in the mining sector experiences fluctuations, which decrease more frequently each year.  

Impact on the performance of esg indices: a comparative study in Brazil and international markets

ABSTRACT The frequent use of Socially Responsible Investment (SRI) indices by market in developed countries has motivated the investigation of the performance of portfolios using SRI indices in Brazil, where no research has been identified comparing relative performance of portfolios composed of companies with and without properly documented Environment, Social and Governance (ESG) practices. In this work we compared the performance of ESG and traditional indices for Brazil and for some reference markets in the United States, Europe and Asia through a panel data analysis for a period from May 2014 to June 2021. The results indicated that there was no significant difference in performance between the traditional and ESG indices for all the markets analysed. In addition, in order to identify the factors that could influence the performance of the ESG index portfolio in Brazil, we control for companies’ ESG practice scores, leverage, size and sector of activities in both additive and interactive models. It was found that the performance of the ESG index was positively influenced by the size and leverage of these companies. The study also shows that the industry of basic materials have a significantly effect on the ESG index.

Towards a sustainable future: a comprehensive review of Green Sukuk

Purpose Green sukuk (GS) is an emerging financial tool that has gained momentum in recent years owing to increased attention being given to Islamic finance, socially responsible investing (SRI) and sustainability agendas. Yet, GS studies are fragmented, dispersed and lack comprehensive reviews. As a response to this gap in academia, this paper aims to synthesize the knowledge on GS into thematic clusters, providing a more comprehensive understanding of the subject and offering guidelines for future research. Design/methodology/approach This study implemented a systematic literature review approach to analyse studies on GS that were published prior to and including June 2023. The PRISMA 2020 protocol was used in the sample selection process. A total of 62 peer-reviewed journal articles from six databases were identified and categorized into various themes. Findings The results suggest that previous research has predominantly focused on the areas of GS advantages, drivers, market development and potential sectors, along with challenges and recommendations to improve the market. However, it was found that some other aspects, including GS pricing, performance and purchasing intention, require further research attention. The analysis also indicated that the use of theories in the GS context was limited, with only five theories employed in just four out of the 62 articles examined. Moreover, this paper’s findings revealed that the studies employing quantitative and empirical analysis methods were limited to four articles. Geographically, most of the studies were conducted in Indonesia and Malaysia, while other countries with high-potential markets (e.g. GCC) had limited GS practices and studies. Practical implications The results of this study have several practical implications. For investors, a review of GS will provide greater insight into the understanding of the GS market, helping them make better investment decisions. For policymakers, this paper empowers them with the knowledge to make informed decisions regarding GS markets by highlighting key recommendations identified in the literature. Finally, the proposed guidelines can be used in future research. Originality/value While Green Bonds have received significant attention, there is a dearth of research on GS and those that exist are fragmented. A systematic literature review is necessary to identify knowledge gaps for future research.

Institutional investors and the adoption of socially responsible investment: an explorative case study of Dutch pension funds

ABSTRACT Although socially responsible investment (SRI) is on the rise, little is known about the adoption process of SRI practices by institutional investors. In this study, we formulate expectations for SRI adoption based on corporate social responsibility (CSR) stage models. These expectations were then tested using a unique dataset containing information on the SRI practices of 50 Dutch pension funds. We find that CSR stage models can plausibly be applied to SRI. In line with CSR stage models, target setting and the involvement of stakeholders is most likely accomplished through pension funds that already follow well-developed SRI practices. Additionally, there is a clear order followed in the implementation of SRI instruments. To further delineate the way in which CSR stage models translate into SRI, it is important to account for the particularities of specific asset classes, the role of the investment chain, and the regulatory and societal conditions in different markets.

The influential ambit of optimal corporate social responsibility investments on the cost of capital in Chinese private firms

AbstractPrivate firms in China are contributing immensely to the country's economic growth. However, increasing the capital cost of private firms in China is a big challenge that needs to be addressed. This study intends to examine the role of optimal corporate social responsibility (CSR) investment while lowering the cost of equity capital and debt capital in Chinese private firms. In addition, this research study reveals the moderating role of state‐owned shares in the association between CSR and private firms' capital costs. By taking a sample of Chinese private firms from 2011 to 2021, this study employs the CSR optimization method. The findings show that CSR optimization tends to reduce the cost of equity capital and debt capital in Chinese private firms. Further investigation shows that over‐investment in CSR increases the cost of capital. Moreover, an increase in state‐owned shares strengthens the negative relationship between the cost of debt capital and optimal CSR investments. The present study's findings are helpful for Chinese firms to undertake optimal CSR investment.

More than morals: a simulation that supports sustainable management education

PurposeWe explore how sustainable management education (SME) can help prepare future leaders to manage crises effectively. Precisely, the intricacies of articulating moral and economic imperatives for businesses in a manner that engages students in sustainable behavior are a serious challenge for SME. We study how to integrate reminders of moral and economic imperatives in a socially responsible investment (SRI) stock-picking simulation created for SME.Design/methodology/approachAdopting an experimental design, we analyzed how the reminders affected the average environment social governance (ESG) integration in the portfolios of 127 graduate students in finance over a twelve-week period.FindingsOur results show how essential it is to balance the two imperatives. The highest level of sustainable investment is attained when utilizing both reminders.Practical implicationsOur findings have practical implications for implementing and organizing SME in business schools to educate responsible leaders who are able to effectively manage crises. Learning responsible management is most effective when students are exposed to the inherent tension between moral and economic imperatives. Hence, our findings corroborate the win-win conception of SME.Originality/valueNo management decision study has experimentally measured the effects of SME practices on students' actual behavior. Our research fills this gap by complementing previous studies on the effectiveness of teaching practices, first by drawing on behavioral sciences and measuring changes in students' actual sustainability behavior and second by introducing moral and economic imperatives into an innovative teaching resource (TR) dedicated to SME.

Unravelling the Impact of Financial Literacy on the Intention of Indian Retail Investors to Adopt Socially Responsible Investments: The Interplay of Social Self-Efficacy as a Mediating Mechanism

In the context of the escalating socio-economic disparities and environmental concerns, this study delves into the intricate interplay among financial literacy (FL), social self-efficacy (SSE) and intentions for socially responsible investment (SRI). Grounded firmly in the theory of planned behaviour, a survey of 235 Indian participants was conducted employing a meticulously structured questionnaire and leveraging Partial Least Squares Structural Equation Modelling software for robust data analysis. The research addresses pivotal questions, examining the impact of FL on fostering positive SRI attitudes, appraising the influence of subjective norms (SNs) on the intentions of Indian investors regarding SRI, and exploring the mediating role of SSE between FL and SRI intentions. The findings underscore the substantive role of FL in shaping positive attitudes towards SRI, exerting a direct influence on SRI propensities. Concurrently, SNs exert a comparable impact on SRI intentions. Notably, the study unravels a dual mediation paradigm, elucidating the sequential mediation of SRI attitude and SSE. The study yields pragmatic implications for fund managers and policymakers. It accentuates the strategic imperative of effective communication of investment benefits, necessitating tailored approaches attuned to cognitive and psychosocial orientations. In essence, the study augments our understanding of the nuanced dynamics guiding sustainable investment decisions, thereby advancing the comprehension of investor behaviour in the domain of responsible investing.

Emerging paradigms in socially responsible investment (SRI)—A study with focus on ESG mutual funds in India

Socially Responsible Investment (SRI) is an emerging investment avenue in India, encompassing various Environmental, Social, and Governance (ESG) mutual funds within the financial markets. This study adopts both an exploratory and empirical approach, aiming to provide historical insights into the landscape of SRI within India’s financial markets. The study’s objectives include elucidating the concept of SRI, assessing the performance of selected ESG funds in India, and examining the opportunities and challenges within this domain. To evaluate the effectiveness of Environmental, Social, and Governance (ESG) funds, the study employs various risk-adjusted performance measures. Notably, the ICICI Prudential ESG Fund in the Direct Plan-Growth (FDPG) option demonstrates superior overall performance compared to other selected ESG fund schemes in India. Conversely, the Aditya Birla Sun Life ESG FDPG option ranks as the least performer when contrasted with other schemes within the Direct Plan-Growth category.

Collaboration in a Partnership for Primary Health Care: A Case Study From Papua New Guinea.

In low- and middle-income countries, public-private partnerships (PPPs) are often used to support the delivery of primary health care (PHC). We explore the processes of collaboration in a corporate social responsibility investment in PHC that was delivered through a PPP model in Western Province, Papua New Guinea, in 2009-2018 to strengthen PHC services. Qualitative interviews were conducted with stakeholders in the PPP (N=20). Key program documents were also reviewed. Data were coded using a general inductive approach, and Actor-Network Theory (ANT) was used to frame the analysis. Four dominant themes emerged: (1) interpersonal relationships accelerate collaboration, (2) collaboration requires time, (3) formal governance structures encourage collaboration, and (4) internal change disrupts collaboration. The research provides insight into the role of collaboration for more efficient, effective, and impactful design and implementation of PPP for PHC. It makes suggestions for how ANT may be used when designing PPPs and for the ongoing management of relationships between partners. We found ANT to be a useful framework to conceptualize the complex dynamics between the "actors" within the PPP and to identify opportunities for improvement where structural changes may be made to circumvent issues that may compromise effective collaboration. Collaboration is key to the success of PPPs for PHC. We found collaboration is not formulaic but is driven by actors, relationships, time, and governance. ANT can assist in designing, understanding, and managing the complex relationships between stakeholders of a PPP, who often come with diverse agendas, experiences, values, and perspectives.

Socially responsible investments: doing good while doing well in developed versus emerging markets?

We investigate the performance of Socially Responsible Investments (SRI) in both developed and emerging countries. We do so by examining the performance of self-constructed equity portfolios based on SRI's mutual funds' current and historical holdings. Based on the current holdings, the SRI equity portfolios from emerging and developed countries significantly outperform their benchmarks, except for the Japanese stock portfolio. We mitigate the current holdings approach's potential look-ahead and survivorship bias by employing the historical holdings approach. The results change dramatically in developed markets: the outperformance of SRI is not significant in the U.S. – the dominant developed markets in the sample – and Japan. In emerging markets, the SRI's outperformance remains significant. It outperforms in both BRICS and Non-BRICS, and in terms of income, it consistently outperforms in the markets of middle-income countries.

Analysis of sources of risk in socially responsible investment: The Moroccan case

This study examines the relationship between socially responsible investment (SRI) and financial risk in listed Moroccan companies. While SRI is often considered less risky than conventional investments (CI), the study aims to understand why this is the case. The analysis takes into account two aspects of risk: specific risk and systematic risk. Specific risks are assessed in terms of the complexity associated with managing SRI and how certain features can mitigate this risk and improve financial performance. Systematic risk is explored in relation to investment diversification while taking ethical considerations into account. The study aims to determine whether the application of social responsibility (SR) criteria to assets reduces diversification and increases risk. Using panel data modeling, the study confirms a positive impact of SR on corporate risk. Specifically, it finds that the "Top Performing CSR" trophy (indicating a high commitment to CSR) has a positive effect on "systematic risk" and that the "CGEM CSR label" (indicating a commitment to CSR) has a positive effect on "specific risk.” In conclusion, the study establishes a positive correlation between social responsibility and investment risk. Companies that adhere to ethical standards tend to present higher levels of risk. This is explained by the complexity of managing socially responsible investments to achieve an optimal level of risk and by the limited diversification resulting from the application of ethical criteria.

Too little or too much? The curvilinear relationship between corporate social responsibility disclosure and investment efficiency in BRICS economies

AbstractThis research article investigates the complex relationship between corporate social responsibility disclosure (CSRD) and investment efficiency in the BRICS economies (Brazil, Russia, India, China, and South Africa). Through the lens of signaling theory, the study examines how CSRD serves as a signal to stakeholders and influences firms' investment decisions. A comprehensive dataset spanning 9240 firm‐year observations from 2011 to 2021 is analyzed to derive insights. The study reveals a multifaceted association between CSRD and investment efficiency. Initially, CSRD is found to increase signal costs, resulting in higher investment inefficiency. However, this effect is observed only up to a certain threshold. Beyond this point, CSRD starts reducing investment inefficiency, primarily due to improved signal benefits and perceived value. Additionally, the study introduces CSR assurance as a crucial moderator that influences the complex interplay between CSRD and investment efficiency. In summary, this research offers valuable insights into the strategic role of CSRD in BRICS economies, highlighting the significance of signal dynamics and the moderating impact of CSR assurance. Such insights can guide businesses and policymakers in these economies as they navigate the intricate landscape of CSR disclosure and its implications for efficient resource allocation.

The Role of Passive Investors in Corporate Governance and Socially Responsible Investing: Evidence from Shareholder Proposals

We study whether the substantial rise in passive ownership reshapes activist shareholders’ behavior in sponsoring shareholder proposals, which shareholders use to address issues they believe are crucial for the sustainable growth of a company. Our findings reveal a positive impact of passive investors on the initiation of governance, socially responsible investing (SRI), and an aggregate of both proposals. Interestingly, we show that managerial ability and board co-option potentially moderate their link. In the subsequent analysis, we note a constructive influence of passive investors on post-initiation outcomes, evidenced by an increase in withdrawal and voting percentage of proposals corresponding to heightened levels of passive ownership. These findings suggest that passive investors foster communication between activists and management and endorse the case even when it progresses to the voting stage. More importantly, the market values these proposals positively as reflected in higher observed buy-and-hold returns. Finally, our results are robust to instrumental variable analysis using Russell reconstitution as an exogenous shock. Taken together, our study offers broad implications that passive investors can indirectly engage in promoting sustainable practices by encouraging activist investors to sponsor governance and socially responsible proposals, a collaborative approach where shareholders contribute to sustainability efforts.

Corporate Social Responsibility Reporting and Investment: Evidence from Mergers and Acquisitions

Corporate Social Responsibility Reporting and Investment: Evidence from Mergers and Acquisitions

Determinant of Coal Sector Firm Value in Indonesia

A company is established to increase the firm value. The rise and fall of firm value is very important for investors and other users of financial reports. The aim of this research is to examine the influence of corporate social responsibility disclosure, investment decisions, funding decisions, and profitability on firm value. The population in this study are coal sub-sector mining companies listed on the Indonesia Stock Exchange. The sampling technique used a purposive sampling method, the research period was from 2018 to 2020. Hypothesis testing used multiple linear regression analysis with the Eviews application software version 11. The results of this study showed that disclosure of corporate social responsibility, investment decisions and funding decisions had no effect on the value of coal sector companies in Indonesia, while profitability has a significant effect on the value of sector companies

Cleansing Investor’s Conscience: The Effects of Incidental Guilt on Socially Responsible Investment Decisions

AbstractThis paper explores the effects of incidental guilt on Socially Responsible Investment (SRI) decisions of retail investors. Do investors who feel guilty invest more in SRIs to clear their conscience? Are guilty investors willing to sacrifice returns to restore their moral selves? Using survey data from an online quasi-experiment among a sample of US retail investors, we find that individuals who experience incidental guilt are willing to invest more in SRI funds than those in a neutral state. We show that this effect, albeit moderate in magnitude, cannot be explained solely by differences in retail investors’ moral reasoning, attitudes towards social responsibility, risk tolerance and demographic factors. When presented with a trade-off between sustainability, risk and return characteristics of the funds, guilty investors are more willing to sacrifice returns for greater sustainability than non-guilty participants. Our research provides new evidence of the effect that incidental guilt has on the sustainable investing decisions of retail investors.

The Role of Corporate Governance in Moderating the Influence of Corporate Social Responsibility Disclosure, Investment Risk and Firm performance in Manufacturing Companies Listed on the Indonesian Stock Exchange 2018-2022

Purpose: This study aims to analyze the impact of Corporate Social Responsibility Disclosure (CSRD) and investment risk on firm performance with CEO integrity, ownership concentration, and independent board as moderating variables. CEO integrity, concentrated ownership, and an independent board of directors are hallmarks of Good Corporate Governance (GCG). Methodology: This study uses manufacturing companies listed on the Indonesia Stock Exchange during the period 2018-2022. The total sample for this study included 107 dates. Purposive sampling technique was used for the sampling method and SPSS 24 software was used for data processing in this study. Results: The results of in this research show that   CSR disclosure does not have a significant impact on firm performance. Investment risk has a positive and significant impact on a company's performance. CEO integrity does not moderate the effect of his CSR disclosure on firm performance, but ownership concentration and independent board of directors moderate the effect of her CSR disclosure on firm performance. Although CEO and independent board integrity do not moderate the effect of investment risk on firm performance, ownership concentration does moderate the effect of investment risk on firm performance. Applications/Originality/Value:  Even if an organization makes CSR disclosures, it does not directly impact its financial performance. Companies must understand and carefully manage investment risk to maintain and improve performance. Additionally, this study shows how ownership concentration and independent boards moderate the impact of CSR disclosure, it shows that highlighting the importance of corporate structure in optimizing corporate sustainability impact.