Socially Responsible Investment Index 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.

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.

The Performance of the Socially Responsible Investment Index in Indonesia

The Performance of the Socially Responsible Investment Index in Indonesia

Water-related sustainability reporting practices amongst South African mining and non-mining corporations

Globally, water resource management has emerged as an important research area and is acknowledged as a crucial factor in achieving sustainable development goals. Despite its significance, water-related sustainability disclosures regarding water and water-related risks among companies are alarmingly weak. Many companies are not effectively measuring, managing, and disclosing their water-related risks. Hence, this paper aims to analyze water-related reporting and disclosure requirements of a sample of ten South African mining and non-mining companies with a high water profile, listed on the JSE Socially Responsible Investment Index. The companies’ level of compliance on water disclosure was assessed based on their reporting in the integrated and or annual reports. The findings revealed that sampled five mining companies performed poorly in terms of disclosure across the frameworks of awareness, disclosure, management, and leadership. On the other hand, the selection of five non-mining companies grasped the severe effect of the water crisis on their businesses and performed better in all the framework categories. The average score for the selection of mining companies was 65% compared to the 93% for the non-mining companies. Stakeholders need to focus on water governance processes that require improvement to enable the stakeholders to make better decisions on water management; subsequently, this is an area that needs to be addressed in future research.

Water-Related Sustainability Reporting Practices Amongst South African Corporations

Globally, water resource management has emerged as an important research area and acknowledged to be a crucial factor towards achieving the sustainable development goals of organisations. Despite its significance, water-related sustainability disclosures regarding water and water-related risks among companies are alarmingly weak. Many companies are not effectively measuring, managing, and disclosing their water-related risks. Hence, this paper aimed to analyse water-related reporting and disclosure requirements of South African mining and non-mining companies with a high water profile, listed on the JSE’s Socially Responsible Investment Index. Using the qualitative approach, the companies’ level of compliance in terms of water disclosure was assessed. The findings revealed that mining companies performed poorly in terms of disclosure across the framework’s awareness, disclosure, management, and leadership categories. Stakeholders need to focus on water governance processes that require improvement to enable the stakeholders to make better decisions relating to water management.

Pengaruh Socially Responsible Investment Terhadap Kinerja Keuangan Pada Perusahaan Manufaktur Sektor Industri Barang Konsumsi Yang Terdaftar Di BEI Periode 2014-2018

The aims of this research is to examine the effect of Socially Responsible Investment (SRI) towards the financial performance of the company. The population in this research are manufacturing company sector consumer goods industry listed on the Indonesia Stock Exchange (IDX) period 2014-2018, totaling 49 companies. Sampling using purposive sampling method, and obtained 170 data from 34 companies in each period. This research used Structural Equation Modeling-Partial Least Square (SEM-PLS) to analyze data. The results of research showed that Socially Responsible Investment (SRI) have a positive significant impact on the financial performance used firm size as control variabel. Financial perfomance in this researchs measured by Return on Asset (ROA), Return on Equity (ROE) dan Net Profit Margin (NPM). Socially Responsible Investment (SRI) measured by JSE Limited SRI Index 2019 and firm size measured by total assets, total sales and total employees.

Are sustainable investments profitable for investors in Central and Eastern European Countries (CEECs)?

This study analyzes the performance of socially responsible investment (SRI) in Central and Eastern European Countries (CEECs), and the extent to which a company’s qualification for a given index affects its value. This evaluation refers only to the companies included in the CECE SRI and RESPECT indices.An event study and performance measures were applied. The results of the event study were checked by means of parametric and non-parametric tests.The research results show better performance of the RESPECT index among other indices. However, the event study findings are significantly different for the CECE SRI and RESPECT indices. A strong inclusion effect was observed only in the case of companies listed in the RESPECT index.

How risky are the socially responsible investment (SRI) stocks? Evidence from the Central and Eastern European (CEE) companies

We evaluate the risk of the socially responsible investment (SRI) stocks from the Central and Eastern European (CEE) markets. Our analysis covers the data from the first and oldest national sustainability stock market index introduced in the CEE countries, i.e. the RESPECT index listed at the Warsaw Stock Exchange (WSE) in Poland, which was launched in 2009. The RESPECT index stocks are compared with other CEE stocks belonging to the CECE SRI index from the broader CEE region listed at the Vienna Stock Exchange (VSE).The beta coefficients and other risk measures evidence that the SRI stocks in Poland, which were constituents of the RESPECT index, have been characterised by relatively lower risk than the broader market and by better risk-adjusted performance. They also exhibited an asymmetric risk behavior patterns. In comparison, the CECE SRI index stocks were also characterised by lower risk than the market, asymmetric risk effects and superior risk-adjusted performance.Overall, we conclude that the investigated SRI companies from the CEE countries are less risky relative to the broader market, but their behavior exhibits clearly asymmetric risk patterns.

Investment in hazardous solid waste reduction and financial performance of selected companies listed in the Johannesburg Stock Exchange Socially Responsible Investment Index

The study examines the influence of investment in hazardous solid waste reduction on companies' financial performance. The challenge is that investment in hazardous solid waste reduction is traditionally considered an unnecessary cost to companies, with investors critical of such an undertaking because they perceive it to have insignificant or no returns. The study sampled 64 mining and manufacturing companies listed on the Social Responsibility Investment Index of the Johannesburg Stock Exchange from 2008 to 2017. Using Panel Data analysis, the results indicate that any investment in hazardous solid waste of the sampled companies is too insignificant to explain the changes in return on assets. The results, however, show that the current ratio is sufficiently significant to influence the return on assets. The results indicate that hazardous solid waste disposal through targeted investment decreases the risk of future liabilities, for instance, environmental litigation, strikes and fines for environmental damage, and could significantly affect the return on assets. The results suggest that hazardous solid waste reduction requires a substantial long-term financial commitment for process change. An example of one such process change is the complete automation for improved efficiency. A short-term approach is ultimately detrimental to tackling long-term hazardous solid waste reduction issues.

Risk-Adjusted Returns of Socially Responsible Mutual Funds II: How Do They Stack Up in Australia?

This article investigates the risk-adjusted performance of Australian socially responsible investment (SRI) mutual funds, their self-specified benchmark indexes, and an alternative SRI index from 2009 to 2019. Adopting a multifactor risk-adjustment model, the article examines whether Australian SRI funds are specifying appropriate benchmarks in terms of their environmental, social, and governance (ESG) investment strategies and risk profiles. The results indicate that Australian SRI fund managers neither outperform nor underperform their self-specified benchmark and alternative SRI indexes. In addition, Australian SRI funds are highly statistically related to their broad-based capitalization benchmark and alternative SRI indexes. While the results show that popular capitalization indexes are suitable proxies for Australian SRI fund performance benchmarking—and that managers seem to be specifying indexes that mirror the risk-adjusted return properties of their funds’ ESG investment strategies—it remains unclear as to why SRI funds are not selecting benchmarks that are ESG focused. TOPICS:ESG investing, analysis of individual factors/risk premia, performance measurement Key Findings • Australian SRI fund managers neither outperform nor underperform their self-specified benchmark and alternative SRI indexes. • Popular capitalization indexes are viable proxies for Australian SRI fund performance benchmarking, reflecting the risk–return properties of the funds’ ESG investment strategies. • It remains unclear why SRI funds are not selecting benchmarks that are ESG focused.

Do board-level controls matter? – An agency perspective on socially responsible investment (SRI) company boards in South Africa

If board-level controls matter, the introduction of the 2008 Companies Act with its enhanced legislative requirements, should have a positive impact on firm performance. To assess board-level controls this study developed two unique control indexes to assess the boards of 84 companies over three years. The study focuses on companies on the SRI index as they have a greater focus on sustainability and transparent disclosure of board-level controls including separation of duties, monitoring, goal-aligned remuneration and oversight. The first index uses 23 board-level control indicators (CI) and the second 19 board-level direction indicators (DI). The two indexes were assessed using fixed effects estimation methods against current and negatively lagged firm performance proxies. Results show that board-level controls matter as both indexes were positively related to return on assets (RoA), however, only DI was highly significant. Both indexes changed to a negative relationship to next year’s return on assets (NYRoA), again highly significant for DI. The change to a negative relationship suggests a timing and information asymmetry problem. CI was positively related to the natural log of enterprise value per share (LEV) with a low level of significance while the positive relation continues to the next year’s natural log of enterprise value per share (LNYEV) that was highly significant. The latter suggests that the controlling role of the board are continued to be valued by the market.

Towards corporate transparency

PurposeThe purpose of this paper is to determine whether companies recognised for the quality of their sustainability reporting are also adopting investor relations (IR) best practices for their IR webpages. Quality communications to all stakeholder groups may then speak to organisational transparency and integrated corporate communication management (CCM).Design/methodology/approachAn ordinary least squares regression model was developed to test the hypothesis that companies with quality sustainability reporting also adopts best practices in online IR. Sustainability reporting quality was signalled by inclusion of the company in a socially responsible investment (SRI) index. IR quality was proxied by disclosure scores compiled from content analyses of investor relations webpages.FindingsThis study find that inclusion in the SRI Index was positively and significantly associated with online IR quality, while controlling for other variables associated with voluntary disclosure behaviour.Practical implicationsFor retail and institutional investors in SRI Index companies, cost of information discovery is reduced as they can use the investor relations webpages as comprehensive source.Originality/valueThis study contributes to the literature on corporate transparency by operationalising reporting “transparency” in that it considers the combined communications output to both financial and non-financial stakeholder groupings. A 2 × 2 conceptual framework for corporate disclosures is proposed that reconciles legitimacy theory and voluntary disclosure theory as motivations. It also contributes to the paucity of research on the links between public relations and investor relations in corporate communications by demonstrating a joint contribution to transparency.

The performance of technical trading rules in Socially Responsible Investments

This study is the first to examine the performance of technical trading in tradeable Socially Responsible Investment (SRI) indices. We employ a number of popular trend-following and mean-reverting technical trading rules and find that trend-following technical trading rules offer very little predictive power or significant returns to investors. However the mean-reverting technical trading rules do offer significant returns, even after controlling for data-snooping, risk, transaction costs and out-of-sample testing. Therefore our results add to the literature by showing that mean-reverting technical trading rules offer substantial predictive power in SRI indices, but traditional trend-following rules offer very little predictive power.

Does doing good lead to doing better in emerging markets? Stock market responses to the SRI index announcements in Brazil, China, and South Africa

This paper investigates whether and how emerging markets reward firms’ corporate social responsibility (CSR) performance. We focus on the socially responsible investment (SRI) index, which lists the top CSR performers and serves as a tool to help investors make investment decisions based on financial and social criteria. We empirically test the financial market responses to the announcements of pioneering SRI indices recently launched in Brazil, China, and South Africa. We find that inclusion on an SRI index in these markets is associated with positive abnormal returns. However, inclusion on an SRI index does not benefit all firms equally: the positive financial response is strengthened by R&D expenditures but weakened by advertising expenditures; it is stronger for firms that have expanded globally to developing countries than those to developed countries.

Inclusions in and Exclusions from the S&P 500 Environmental and Socially Responsible Index: A Fuzzy-Set Qualitative Comparative Analysis

Socially responsible investment (SRI) indices provide an interesting opportunity to analyse the links between corporate financial performance (CFP) and corporate sustainability performance (CSP). However, few studies focus on the antecedents of inclusions in and exclusions from SRI indices. Specifically, the implications of corporate sustainability disclosure (CSD) have been largely ignored in this field. Furthermore, previous literature on the CSP-CSD-CFP links shows inconclusive results that have been attributed to both methodological and measurement problems, which suggest the existence of asymmetry, equifinality and complexity amongst these links. This study targets two under-researched areas regarding the determinants of changes in the composition of SRI indices, and the effects of CSD on CSP. This study also attempts to overcome the methodological and measurement limitations of previous studies on the CFP-CSD-CSP links. The study presents a fuzzy-set qualitative comparative analysis (fsQCA) to explore how different combinations of CFP and CSD indicators are related to inclusions in an SRI index (assumed as expressions of a good CSP), and exclusions from an SRI index (equivalent to a poor CSP). The empirical results reveal that a combination of different CSD indicators is necessary, but not sufficient, to lead to the inclusion in or exclusion from an SRI index, and that CFP measures have asymmetrical effects on CSP. CSD is a relevant antecedent or precondition of CSP that can motivate changes in corporate behaviours towards an improved CSP. Poor CSP, leading to an exclusion from the index, is associated with poor CSD and a deterioration of CFP. The implications for researchers, business managers, SRI rating agencies and policymakers are derived.

The power of ethical investment in the context of political uncertainty

ABSTRACTIn this paper we analyse a set of socially responsible investment (SRI) indices against their conventional counterparts in the US context. Using a data set that spans the Obama and Trump administrations, we aim to identify whether performance and volatility patterns differ when markets are exposed to political uncertainty and the Global Financial Crisis (GFC). The findings suggest that SRI indices underperform conventional indices, and that the S&P 500 has a significant impact on their behaviour. The CBOE’s Volatility Index (VIX), the US Equity Related Economic Uncertainty Index (EEUi) and the impact of the economic policy uncertainty index (EPUi) are used to consider market volatility and political uncertainty, with VIX emerging as the best indicator to capture market uncertainty. The study signals a positive and significant impact on SRI indices during the first hundred days of the Obama administration with a lack of significant findings for the Trump administration for the period of study. The results for implied volatility reveal similar patterns across all indices.

Corporate social responsibility and financial performance: Evidence from the Johannesburg Stock Exchange, South Africa

Background: Stakeholders are increasingly concerned whether the companies they are involved with act in a socially responsible way. However, stakeholders like employees and shareholders also have a direct financial interest in those companies and need to be assured that company actions bring forth some financial benefit.Aim: The research investigated one of the main questions surrounding the concept of corporate socially responsibility, namely whether a company’s investment in and effort towards corporate social responsibility results in improved financial performance. The purpose of this study was to narrow the gap in the body of knowledge in relation to corporate social responsibility and its relationship to financial performance.Setting: This research investigated whether there was a relationship between being listed on the Johannesburg Stock Exchange (JSE) Socially Responsible Investment (SRI) Index and financial performance. The unit of study comprises 885 company-years of companies listed on the JSE over the period 2009–2014.Methods: Logistic regression was used to find evidence of a relationship between a listing on the JSE SRI Index and financial performance.Results: It is evident that there was no real relationship between inclusion on the JSE SRI Index and financial performance, but there was a direct relationship between the size of a company and having a listing on the JSE SRI Index.Conclusion: A listing on the JSE SRI Index does not have a clear and direct impact on financial performance, but it appeared that larger companies are perhaps better able to invest in corporate social activities and are, as a result, more likely to be listed on the JSE SRI Index.

Islamic, socially responsible, and conventional market comovements: Evidence from stock indices

This article extends the literature on ethical investment risks, correlations, and comovements. Through a sample of 17 Islamic, socially responsible investment (SRI), and conventional stock indices, we investigate cointegration and dynamic correlations for the period 2005–2015. We also examine these stock indices’ responses to two major economic factors, namely, oil prices and market volatility. Our results show cointegration between Islamic, SRI and conventional stock indices, and comovements with mutual causalities. During crises, dynamic correlations tend to spike; however, quite a different pattern emerges during postcrisis periods when there is more variability in conditional covariances. Finally, we provide evidence that all three types of stock indices react positively to oil price changes, but negatively to global equity market volatility, albeit with different magnitudes. Overall, investors can obtain portfolio diversification benefits through SRI and Islamic stock indices, particularly in postcrisis periods.

Constructing an Islamic Socially Responsible Investment (SRI) Index; The Case of Indonesia

The aim of this study are: (i) to develop an index based on Islamic stock from List of Islamic Securities (DES) and integrate them with the concept of Socially Responsible Investment (SRI ) and (ii) to compare the performance of the constructed index with Jakarta Islamic Index (JII) and SRI Kehati Index. We construct the index using Equally Weighted Method from extensive dataset of more than 300 Islamic securities listed in the List of Islamic Securities (DES). Our result is fairly striking as the Islamic SRI index outperform JII and SRI Kehati as well. We conclude that additional screening with ESG parameter does not impact the index performance. To our knowledge, this research is the first to introduce an Islamic SRI stock Index, particularly in Indonesia. Hence, the result could be a consideration for the Indonesia stock exchange (IDX) stakeholder to introduce this index to the market. Furthermore, the results is expected to help investors in selecting stock that meet the standards of Islamic stocks while also fulfill the ESG criteria into their investment portfolios.

Unexpected social performance and share returns in South African companies: an event study methodology

This paper used event study methodology to analyse whether South African companies' returns are affected by unexpected increases or declines in their social performance. Using daily returns spanning from 2004 to 2014, this study found that abnormal returns of companies added to the South African Socially Responsible Investment (SRI) index for the first time were not statistically significant during the event period. Companies removed from the SRI index earned significant negative abnormal returns. This means that unexpected increases in companies' social performance has no effect on companies' returns; while unexpected declines in companies' social performance tend to affect companies' returns negatively. This study concludes that South African socially responsible investors consider unexpected decline in companies' social performance as bad news.