Socially Responsible Investment Investors Research Articles

Diversification effects of China's carbon neutral bond on renewable energy stock markets: A minimum connectedness portfolio approach

Socially responsible investment (SRI) is becoming increasingly popular in China, with the announcement of carbon dioxide peaking by 2030 and carbon neutrality by 2060 (30–60 targets). As a conventional underlying asset of SRI, renewable energy stocks are attractive, but with higher price volatility than many other traditional industrial stocks. This paper aims to investigate the interaction and diversification effects of China's Carbon Neutral Bond (CNB), a new SRI underlying asset just launched in 2021, on renewable energy stocks using a novel minimum connectedness portfolio approach recently proposed by Broadstock et al. (2020). The empirical results show that, first, China's CNB is weakly related to renewable energy stocks, whether in the time or frequency domain, and is the main recipient of the net linkage effect. Second, different renewable energy stocks benefit differently from the diversification effect of CNB. However, in extreme market conditions, the diversification effect of the CNB is reduced. Third, the newly developed minimum connectedness portfolio approach can outperform traditional minimum variance and correlation methods by achieving higher cumulative portfolio returns. Finally, the Sharpe ratios of renewable energy stock portfolios with CNB are significantly higher than those without it across different allocation methods. These findings have important implications for policy makers and SRI investors.

Households' investments in socially responsible mutual funds

We use a large administrative panel data set to study which characteristics are related to households’ investments in socially responsible investing (SRI) mutual funds. To isolate financial and non-financial preferences for SRI investments, we distinguish between two types of SRI funds; ESG and charitable funds. We also analyze to what extent liquid wealth and age play a role in allocation of SRI funds. We find that participation in SRI funds is lower for young and retired investors. Moreover, we find that young adults are more likely to be ESG investors, while retired investors are more likely to participate in charitable funds. Further, liquid wealth is important for SRI participation but becomes less relevant once investors have sufficient liquid wealth. For the exposure to SRI funds, the overall picture is quite different as it is negatively related to wealth, income, risky share, and education. The relationship between investors’ characteristics and the returns on their conventional fund portfolio are similar for conventional and SRI investors. Our analysis indicates that SRI investors might have non-financial objectives for their SRI investments. Finally, we find that, on average, SRI investors earn higher returns on their total fund portfolio compared to conventional investors.

Value of Values for Startup Investors

To meet our present needs without compromising future generations, we need more firms with sustainable business model (SBM). However, these firms will flourish only if there are investors using financial, social, and environmental criteria in their decision-making process. To understand why invest in SBM startups, and the difference among investors that make socially responsible investment (SRI) and non-SRI, the first author participate-as-observer in an accelerator, including decision meetings about which startups to invest. We also interviewed investors of both types and collect secondary data about interviewees to validate our findings. We find that SRI investors have concerns about inequity, society, and environment, mostly because of their life history, leading to an other-regarding approach when investing, but also considering there is a better way to make business, meaning that SRI is a virtue and a practice to excel. In the other hand, non-SRI investors want to achieve financial gains, through an opportunity-seeking behavior, learn about new technologies and business models, and networking, increasing their opportunities and connections, indicating a self-interest approach. However, some non-SRI may perceive SRI as a virtue and decide to invest in SBM to achieve the good, indicating a mimetic behavior. Background play an important role as an antecedent on investment decision, and studies that evaluate other-regarding should consider individuals history. Finally, we identify that virtue and moral values play a significant role on SRI decision-making process. Future research can evaluate how background, other-regarding, and virtue can improve game, action, and behavioral theories.

The Motivations and Practices of Impact Assessment in Socially Responsible Investing: The French Case and its Implications for the Accounting and Impact Investing Communities

ABSTRACT This research note elaborates on the impact assessment practices of the French Socially Responsible Investing (SRI) industry. The research was conducted by the Scientific Committee of the French public SRI label based on interviews, participative observation, a survey, and documentary evidence. SRI is usually distinguished from impact investing in terms of investors’ different intentions (contributing to sustainable development in a financially savvy way for SRI vs. demonstrating a societal impact for impact investing). We show that, beyond this distinction, the meanings and motivations behind impact assessment in the SRI community are broadly different from impact assessment practices in impact investing, creating a distance between the two communities. In fact, little is known about impact assessment practices in SRI, despite the market power of this asset class. We address this shortcoming by investigating 1) who is interested in impact assessment in the SRI industry, 2) why SRI investors want impact assessment, and 3) what impact assessment looks like in the SRI industry. We develop this analysis to suggest areas of concern and opportunities for the SRI, impact investing, and accounting communities. SRI investors’ recent appropriation of impact assessment indicates that the three communities’ interests and success will increasingly be linked to one another. The topic therefore warrants investigation.

Socially Responsible Investment Portfolio Construction with a Double-Screening Mechanism considering Machine Learning Prediction

Although socially responsible investment (SRI) has developed into an important investment style, only a small number of studies discuss SRI portfolio construction. In view of the overwhelming breakthrough of machine learning in prediction, this paper proposes SRI portfolio construction models by combining a double-screening mechanism considering machine learning prediction and an extended global minimum variance (GMV) model (or extended maximum Sharpe ratio (MSPR) model), which are, respectively, named double-screening socially responsible investment (DSSRI) portfolio models I and II. The proposed models consist of two stages, i.e., stock screening and asset allocation. First, this paper develops a novel double-screening mechanism incorporating environmental, social, and corporate governance (ESG) and return potential criteria to ensure that high-quality stocks with good ESG performance and high-return potential are input into the optimal portfolio. Specifically, to obtain accurate stock return predictions, an extreme learning machine model optimized by the genetic algorithm is employed to predict stock prices. Next, to trade off the financial and ESG objectives of SRI investors, an extended GMV model (or extended MSPR model) considering the ESG factor is introduced to determine the capital allocation proportion of the stocks. We take the A-share market of China as the sample to verify the effectiveness of the proposed models. The empirical results demonstrate that compared with alternative models, the proposed models can yield better annualized return and ESG score performance as well as competitive Sharpe ratio performance.

Do Socially Responsible Investment Funds Sell Losses and Ride Gains? The Disposition Effect in SRI Funds

An increasing percentage of the total net assets under professional management is devoted to ethical investments. Socially responsible investment (SRI) funds have a dual objective: building an investment strategy based on environmental, social, and corporate governance (ESG) screens and providing financial returns to investors. In the current study, we investigate whether this dual objective has an influence on the behavior of mutual fund managers in the realization of gains and losses. Evidence has shown that most investors in SRI funds invest in those funds primarily because of their social concerns. If the motivations of SRI managers align with those of SRI investors, SRI managers might then have more incentives than conventional managers to hold onto losing stocks if they feel their social value compensates for the economic loss. We hypothesize that SRI managers would be less prone to the disposition effect than conventional managers. Pertaining to the disposition effect, we do not find evidence of a difference in the behavior of SRI fund managers compared with that of conventional fund managers. Our results hold, even when considering market trends, management structure, gender, and prior performance.

How Company Size Bias in ESG Scores Impacts the Small Cap Investor

The rising popularity of socially responsible investing (SRI) has increased interest in the relationship between traditional measures of corporate financial performance (CFP) and the emerging field of corporate social performance (CSP). SRI investors have tended to have a large capitalization (cap) stock focus that has served them well in the past, but that may be suboptimal in the future if we return to a period of small cap outperformance. Using environmental, social, and governance (ESG) scores as a proxy for CSP, our research supports past studies showing a large cap bias in measures of CSP. Narrowing our focus, we find that within the US small cap stock universe, the correlation between firm size and ESG scores is greatly reduced. We construct small cap ESG leaders and laggards portfolios and test their performance. We demonstrate that performance was not affected by neutralizing these portfolios with respect to firm size. Our results reinforce the idea that CSP proxies such as ESG scores have the potential to practically enhance portfolio performance in US small cap stocks. <b>TOPICS:</b>ESG investing, analysis of individual factors/risk premia, portfolio construction, performance measurement <b>Key Findings</b> ▪ ESG size bias is not as significant in US small cap stocks as it is in US large cap stocks. ▪ Stocks with high (low) ESG scores outperform (underperform) the market in the US small cap space. ▪ It is possible for US small cap portfolio managers to use ESG as an alpha generating tool without taking size risk.

“A Study On The Sustainable Investment Funds With Sepcial Reference To State Bank Of India Esg Mutual Fund Shcemes”

Socially Responsible Investment (SRI) refers to the allocation of funds in certain practises that have a high social impact. It includes assessing businesses on the Environmental , Social and Governance (ESG) screens. A socially conscious investor may either invest directly in financial markets or through investment instruments such as mutual funds via ESG fund schemes. Very few of the numerous mutual fund organizations have implemented ESG Fund schemes to appeal to SRI investors. The SBI Mutual Fund is the first AMC to follow this and has been benchmarked against the Nifty 100 ESG indices. A correlation analysis is made among the results of the SBI Mutual Fund and the NIFTY to compare the four different types of SBI ESG funds and their sector wise participation in different industries. This research paper is methodological in nature as it interprets the published secondary data sources of the SBI Mutual Fund and the NIFTY indices. The goal of this paper is to assess the efficacy of the ESG Equity Fund in the investment portfolio of mutual fund investors and to enable small and medium-sized investors to contribute their money to ESG-driven mutual fund schemes.

Do “Good Guys” Finish Last? The Relationship between Morningstar Sustainability Ratings and Mutual Fund Performance

Given the rapid growth of investment products focused on socially responsible investing (SRI), in March 2016, Morningstar began reporting standardized metrics to “grade” the sustainability (i.e., SRI) level of thousands of mutual funds. By analyzing this new metric, the authors aim to help clarify the ongoing debate surrounding whether SRI positively or negatively affects investor returns. They find that funds with high sustainability scores have about the same risk-adjusted returns (i.e., alphas) as other funds. Thus, SRI investors can apparently follow a social mandate without sacrificing financial performance, but also without garnering any incremental financial benefit as well. They find, however, that the vast majority of high sustainability funds are concentrated in the large-cap space, which implies that strict adherence to social criteria could inadvertently result in less diversified investor portfolios. They also find that funds with high Morningstar sustainability scores generally mimic those of self-proclaimed SRI funds, suggesting that the new metric opens up a larger pool of potential funds for investors focused on SRI. Lastly, they find that funds that specifically designate and market a social mandate experience more stable cash flows; therefore, the self-proclaimed mandate may be more beneficial for the fund company than it is for investors.

Usefulness of ASSET4 ESG for Socially Responsible Investing in a Small Economy

This article examines the risk–return trade-offs of socially responsible investing (SRI) by using the ASSET4 ESG rating for the small economy of New Zealand. The author explores the idea of developing a new typology of CSR communication strategies for stock selection and tests its usefulness for an SRI investor in a small economy, where less-well-known stocks are often not included by ASSET4 ESG. He finds that a portfolio comprising stocks that demonstrate their responsive to stakeholder concerns about social and environmental issues in their CSR communication, rather than actively engaging stakeholders to solve the social and environmental problems, outperform an ASSET4 SRI portfolio in the short and long run. The results provide evidence that an SRI portfolio formed using the idea of a readability score of a company’s CSR information offers ex post higher returns to SRI investors in smaller economies.

Improving Diversification Opportunities for Socially Responsible Investors

Socially responsible investment (SRI) has grown enormously and has expanded globally in recent years. It allows SRI investors to reduce their portfolio risk assumptions through international diversification. In this context, the aim of this paper is twofold (i) to examine price and volatility linkages among the most representative SRI indexes for North America, Europe, and Asia-Pacific employing a multivariate approach and (ii) to provide the out-of-sample performance of an optimal portfolio constructed on the basis of time-varying return and volatility forecasts from this specification approach. Our overall results show that using this technique, it is possible to reduce risk and out-perform the naive rule, which is usually employed in this type of investment. These findings are relevant not only for academics but also for practitioners, especially for professional managers of SRI portfolios.

Modeling volatility and conditional correlations between socially responsible investments, gold and oil

Socially responsible investing (SRI) is one of the fastest growing areas of investing. While there is a considerable literature comparing SRI to various benchmarks, very little is known about the volatility dynamics of socially responsible investing. In this paper, multivariate GARCH models are used to model volatilities and conditional correlations between a stock price index comprised of socially responsible companies, oil prices, and gold prices. The dynamic conditional correlation model is found to fit the data the best and used to generate dynamic conditional correlations, hedge ratios and optimal portfolio weights. From a risk management perspective, SRI offers very similar results in terms of dynamic conditional correlations, hedge ratios, and optimal portfolio weights as investing in the S&P 500. For example, SRI investors can expect to pay a similar amount to hedge their investment with oil or gold as investors in the S&P 500 would pay. These results can help investors and portfolio managers make more informed investment decisions.

Socially Responsible Investment in the alcohol industry: an assessment of investor attitudes and ethical arguments

I examine and evaluate the ethical standards and arguments that Socially Responsible Investment (SRI) investors use when they deselect the alcohol industry and alcohol corporations. The alcohol industry was the first industry excluded by SRI investors and is, relative to fund size, the second most prominent negative screen (after tobacco). I discuss the role of shareholder democracy in the alcohol industry, review some evidence on the financial effects of SRI on sin stocks and investigate the motivations that SRI investors may have to eschew investment in the alcohol industry (almost no motivation can be found). I discuss a number of ethical issues that are salient in the alcohol industry and that ought to concern ethical investors. I draw attention to, in particular, the marketing of alcopops (flavoured alcoholic beverages or malternatives such as Smirnoff Ice and Bacardi Breezer), and strategies involving so-called beer girls. This prepares the way to a reconstruction of two kinds of arguments that SRI investors might implicitly adhere to when they put a negative screen on alcohol: a Public Goods Argument and a Religious Values Argument. I show that the Public Goods Argument is problematic because it risks democratic legitimacy and effectiveness, and that while the Religious Values Argument is a coherent defence for individual investors accepting particular religious views, it is unacceptable if used by institutional investors forcing religious values upon involuntary participants when no societal unanimity concerning these religious values exists. Pension funds and health-care plans are examples of such investors. Finally, I provide an alternative Ethical Issues Argument and defend the claim that there are no good moral reasons for institutional SRI investors to circumvent the alcohol industry; rather, they should use shareholder democracy to make alcohol corporations address the ethical issues lest these issues will never be addressed by the corporations themselves.

Trends in the literature on socially responsible investment: looking for the keys under the lamppost

In this paper, we use online search engines and archive collections to examine the popularity of socially responsible investing (SRI) in newspapers and academic journals. A simple content analysis suggests that most of the papers on SRI focus on financial performance. This profusion of research is somewhat puzzling as most of the studies used roughly the same methodology and obtained very similar results. So, why are there so many studies on SRI financial performance? We argue that the academic literature on SRI is mostly data driven: the famous ‘looking for the keys under the lamppost’ syndrome. The question of the financial performance of the SRI funds is certainly relevant but maybe too much attention has been paid to this issue, whereas more research is needed on a conceptual and theoretical ground, in particular the aspirations of SRI investors, the relationship between regulation and SRI as well as the assessment of extra‐financial performances.

Dear Sir, we are not an NGO

With the financial crisis, socially responsible investment (SRI) has gained attention. SRI designates a variety of rationales and techniques for including non-financial criteria into investment decisions. One technique of SRI consists of investors engaging with investee corporations on issues of concern. The aim is twofold. First, the investor hopes to get more information on corporate policies and practices with regard to allegations of improper behaviour, made by third parties (NGOs, unions, press). Second, the investor tries to influence these practices by signalling investor concern to top management over certain issues. However, the engagement process itself remains opaque, especially in Europe where shareholder activism (SRI activists voting at AGM) is relatively unknown, and where ‘soft engagement’ (behind-closed-doors-dialogue) is more popular. This article takes an organizational rhetoric approach to provide insights into the complexities and ambiguities that are at play in the interaction between representatives of SRI investors and corporations. We use data from an investor engagement process (letters to and from management and boards of investee corporations) on three cases of corporate activities in Myanmar. Our findings are that the investor initiative has a hard time getting investees to answer a number of straightforward questions about the investee's risk exposure and risk management with regard to being involved in breaches of International Labour Organization core conventions. From our organizational rhetoric analysis we offer plausible explanations for this both on investor side (ambiguity of intent, lack of credibility on investor side) and on corporate side (ambiguity of audience to respond to, lack of engagement experience, the assumption that moral arguments are expected rather than proper risk management).

The effect of near- versus distant-future mindsets on socially responsible investors’ mutual fund preferences

Socially responsible investing (SRI) has seen tremendous growth in recent years. For SRI investors, choosing among potential SRI investments often requires making trade-offs between social responsibility and financial aspects of the investment. In this study, we examine contexts where investors are more versus less willing to make such trade-offs, specifically in the context of SRI-guided mutual funds among Muslim investors. We expect that priming a near-future mindset will make respondents less likely to trade-off social responsibility for financial considerations, whereas priming a distant-future mindset will make respondents more likely to make such trade-offs. Using a discrete choice experimental design among Saudi Arabian adults, we find support for our hypotheses. Managerial implications and directions for future research are discussed.

Socially Responsible Investment Sebagai Motif Penerapan Sustainable Corporate Social Responsibility

Socially responsible investment (SRI) usually known as sustainable or ethical or green investment is a new type of investment movement in response social expectations of investors. Social investors are people who want improve conditions in society by investing their money in shares or mutual fund from companies that doing their practices in environmental, social and governance issues. Thus, SRI is investing that is mindful of the impact on environmental and society of that investment. It is often described investors as allowing them to doll by doing goods”. SRI that integrates environmental, social and governance factors into investment decisions, encourage corporations doing Corporate Social Responsibility (CSR) as a part of their strategic business. CSR is a commonly used term today.CSR is about a sustainable commitment by business behave ethically and contribute economic development while improving the quality of life of the community and society and doing environmental preservation. With the globalization of the economy, such issues as environmental degradation and violations of human rights are cause social investors encourage SRI grow rapidly. And today’s SRI trends in Global Market reveal how SRI is growing in revenue and making Corporate Social Responsibility happen. Therefore, SRI investors had an important role encourage corporations improve their practices environmental, social and governance issues as a continuing CSR.Key words: Socially Responsible Investment

Investment Style and Perceived Drivers of Adoption ofSocially Responsible Investment among SwedishInstitutional Investors

A survey was conducted to investigate investment style and drivers of socially responsible investment (SRI) among institutional investors. Respondents were 60 professionals working as SRI or non-SRI investors in 19 different Swedish banks, pension funds, or mutual fund companies. The results showed that non-SRI investors perceived market regulations to be a strong driver of SRI, while SRI investors perceived others’ behavior to be a strong driver. No differences were found between SRI and non-SRI investors with respect to short-term versus long-term or active versus passive investment styles. <b>TOPICS:</b>ESG investing, style investing, legal/regulatory/public policy

Investment Institutions' Beliefs About and Attitudes Toward Socially Responsible Investment (SRI): A Comparison Between SRI and Non‐SRI Management

ABSTRACTThis paper investigates psychological drivers and financial motives that may influence major Swedish investments institutions to adopt socially responsible investment (SRI). Based on an instrument that captures concepts in the Value‐Belief‐Norm theory, and potential financial beliefs that may influence the SRI intentions of investors, a survey was addressed to all major Swedish investments institutions. Fifty‐eight respondents from 17 different investment institutions participated in the survey of whom 31 were conventional (non‐SRI) investors and 27 were socially responsible investors. Our results show that conventional and SRI investors share similar beliefs about short‐term and long‐term performance on SRI investments in that SRI gives less return in the short term but slightly more than conventional investments in the longer term. However, SRI investors express significantly more interest in increasing their future SRI investments than conventional investors do. We discover that future SRI is not influenced by social and environmental concerns. Rather, financial beliefs about risk and beliefs about increased market shares drive SRI forward. The business case for SRI seems therefore to be the only reason for major investment institutions to adopt SRI. Copyright © 2011 John Wiley &amp; Sons, Ltd and ERP Environment.

Are socially responsible investment markets worldwide integrated?

PurposeThis study seeks to investigate the extent and structure of equity price interdependence among the socially responsible investment (SRI) markets of Australia, Canada, Japan, UK and USA over the period 1994‐2010.Design/methodology/approachThe paper examines the degree of price co‐movement between SRI markets by using a vector autoregression analysis to identify the markets which have significant price co‐movements. Subsequently, a variance decomposition analysis is conducted among the markets which are significantly related in order to determine the extent of interaction between these markets and to identify the markets that are most and least influential.FindingsThe results show that the SRI markets are significantly interdependent and have become more so over the years. The USA and the UK are the markets most linked to others while Canada and Australia are the most influential. However, although the markets are significantly integrated, the level of integration is still at a low level.Originality/valueThis is the first known study to examine price linkages among international SRI markets. This knowledge is important for investors as the benefits from international diversification depends on the extent of linkages between different SRI markets. Such knowledge is also valuable for policymakers and regulators if they are to address international contagion risk between markets. The study found that SRI markets are significantly linked; however, the level of linkages is still at a relatively low level. This implies that there are still significant benefits to be derived by SRI investors through international diversification.