Socially Responsible Investment Research Articles

When and where does it pay to be green? – A look into socially responsible investing and the cost of equity capital

We investigate the circumstances under which socially responsible investing (SRI) enhances firm long-term financial performance, and therefore provides incentives for firms to self-regulate their environmental performance. Aggregating portfolios across SRI mutual funds, we estimate the effect of SRI investment with environmental screening criteria on firm cost of equity capital. We find that accounting for interactions between firm and non-shareholder stakeholders, and potential agency costs associated with certain environmental activities of the firm, SRI can facilitate the alignment of firms’ environmental and financial goals. We also find that an industry group’s environmental performance and diversity influence the extent to which a firm in that group can benefit from SRI investment.

Where the past meets the present: Upward mobility, environmental stimuli, and CEOs’ investment in corporate social responsibility

Does the experience of upward mobility impact top executives’ investment in socially conscious initiatives at the firm level? Despite early theorizing, much remains unknown about how top executives’ experiences with upward mobility impact their decisions related to corporate social responsibility (CSR). In this study, we focus on chief executive officers (CEOs) from lower social class origins, who represent the most extreme case of upward mobility among their peers, and examine the effects of their background on the likelihood of helping others. Drawing on upper echelons and social class literature, we theorize that top executives’ past—where they come from (i.e. social class origins) and what they have experienced on their climb to the top—influences CSR decisions. We argue that CEOs from lower social class origins develop simultaneous, but at times competing, habitus that influence them to invest more in community-centric but less in employee-centric CSR than their counterparts from middle and upper social class backgrounds. Drawing on trait activation theory, we also predict the moderating influence of the immediate environmental context, namely local levels of poverty and prosperity. Overall, our results support our hypotheses and provide a complex picture of how upward mobility, and its attendant tensions, can affect executive values and CSR.

Does Socially Responsible Investing Change Firm Behavior?

Abstract Using micro-level data, we examine the behavior of socially responsible investment (SRI) funds. SRI funds select firms with lower pollution, more board diversity, higher employee satisfaction, and better workplace safety. Yet, both in the cross-section and using an exogenous shock to SRI capital, we find that SRI funds do not significantly change firm behavior. Moreover, we find little evidence that they try to impact firm behavior using shareholder proposals. Our results suggest that SRI funds are not greenwashing, but they are impact washing; they invest in a portfolio of firms with better environmental and social conduct but do not follow through on their promise of impact.

Socially responsible investing: Is it for real or just for show?

Many mutual funds declare themselves as socially responsible investment (SRI) funds. However, it is unclear whether this rhetoric is simply window-dressing to attract capital inflows or reflects genuine concern. We show that companies with better environmental, social, and governance (ESG) performance are more attractive to SRI mutual funds. More importantly, SRI mutual funds positively affect their investee firms' ESG performance after controlling for firm characteristics, possible endogeneity issues, and omitted variables. Furthermore, ownership structure, board members' international experience, and social media attention are important channels through which SRI mutual funds influence their investee firms' ESG performance.

Socially Responsible Investment in the Russian Stock Market

One of the major elements of the sustainable development policies is the socially responsible investing (SRI), also called ESG investing (environmental, social, and corporate governance) or green investing. The key feature of SRI (ESG investments), which distinguishes it from the other forms of raising capital, is the focus on priority financing of environmental and social projects providing long-term positive effects and consequences for society (the wellbeing of an individual and the nation), the environment (including climate), regional and global economies. The research aims to study ESG-investments’ influence on the Russian economy, specifically, the exchange-traded funds (ETF) industry. The research methodology includes structuring, comparison, generalization, economic analysis, induction, deduction and synthesis. The results of include analysis of the foundations of socially responsible investments, the concepts, and factors of ESG investments. Also, the global and Russian ESG markets are explored, including ESG-exchange traded funds industry, its features, structure and trends. Based on the research, the author concludes that the Russian market for ESG instruments is only developing. However, interest in this category of financial instruments is growing among investors, which is facilitated by the policy pursued by the national regulator (the Bank of Russia), which encourages the introduction of ESG practices by Russian issuers of securities.

The impact of the COVID-19 pandemic on motivating factors affecting individual investors’ socially responsible investment decision: a comparative analysis of the USA, Germany and Japan

PurposeIndividual investors are experiencing serious sentiment shifts that influence their financial activities due to the COVID-19 pandemic while socially responsible investment (SRI) has garnered attention worldwide. This study aims to explore how individual investors’ sentiments and investment choices altered in reaction to the COVID-19 pandemic.Design/methodology/approachWe surveyed 1,219 individual investors in Japan, the USA and Germany using an online questionnaire and performed a cross-sectional analysis using logit and ordered logit regressions.FindingsThis study found that individual investor sentiment affects SRI after COVID-19, but not necessarily in the same manner. Return-focused aspects negatively affect their SRI, while relationship-oriented social issues positively affect it. In addition, the relationship differs by nation. Japanese investors anticipate shorter term SRI returns than the US and German investors. Only Japanese investors’ SRI decisions were impacted by the relationship-oriented social factors including the environment, diversity and employee rights and welfare.Research limitations/implicationsThis study emphasizes the need for precise motivation characterization when evaluating the same issue. The author also identified the variance and characteristics among countries, which differ from previous research.Practical implicationsAn academically credible image of the relationship will enable business managers to find appealing strategies. This study also suggests country-specific investor relations strategies.Originality/valueThis study differentiates return- and relationship-oriented social motivations for SRI into 14 components, thus clarifying the relationship mechanism between the COVID-19 pandemic and individual investors’ SRI behavior. Moreover, no study has compared individual investor sentiment and investment behavior affected by the pandemic in the three countries.

Hidden Gem or Fool’s Gold: Can passive ESG ETFs outperform the benchmarks?

Using a unique and extensive dataset of 121 socially responsible investing (SRI) equity exchange-traded funds (ETFs) from January 2010 to December 2020, this study examines how passive SRI ETFs perform compared with their non-SRI benchmarks composed of S&P500 ETFs. Over the full sample period, our results show that an equally weighted SRI ETF portfolio underperforms its benchmark portfolio. Notably, we do not find significant differences in the two portfolios’ performance in the second half of our sample period. However, in the last two years, the SRI ETF portfolio significantly outperforms the benchmark. For the SRI investment strategies, we show that positive screening (or inclusion) rather than negative screening (or exclusion) can beat the benchmark portfolio. In particular, environmental inclusion screen provides significantly higher abnormal returns. Finally, we find that SRI ETFs’ performance can be explained by increasing industry competition and declining market concentration.

CSR gap and firm performance: An organizational justice perspective

A firm’s internal and external stakeholders may have conflicting demands on the firm’s corporate social responsibility (CSR) investments. Based on the organizational justice perspective, this study examined the impact of the gap between external and internal CSR investments on firm performance. A panel sample of 3,302 firms and 21,031 firm-year observations from China over the 2010–2019 period was employed. The results empirically supported the negative impacts of the CSR gap on financial and operational performance. In addition, this study found that CSR disclosure strengthened the negative impacts, while the Employee Stock Ownership Plan weakened the impacts. This research also provided empirical evidence of the link between CSR and firm performance by considering the competing relationship between internal and external CSR investments and employees’ perceptions. The findings suggested that managers adopt a more productive CSR strategy based on a careful consideration of different CSR dimensions.

Corporate social responsibility, financing capacity and innovation investment -- an empirical analysis based on a-share listed high tech enterprises

ABSTRACT Over the past few years, China’s economy has been on a rapid upswing, and corporate R&D and innovation performance, the first driver of high-quality development, has been considered the key to achieving a breakthrough in China’s economic development. At the same time, the ability of companies to assume social responsibility while operating has been the focus of public attention. This study examines the impact of taking social responsibility on the ability of enterprises to invest in innovation. This study uses A-share high-tech enterprises in China from 2017–2019 as the research sample and uses ordinary least squares (OLS) to conduct the analysis. The results illustrate that shouldering social responsibility is a facilitator of innovation investment, and external financing can enhance the facilitation effect of CSR on innovation investment.

How does institutional cross‐ownership affect firm productivity? The importance of the corporate social responsibility channel

AbstractThis paper investigates the effect of institutional cross‐ownership on firm productivity and whether this effect occurs indirectly through corporate social responsibility. Based on a sample of French firms from the 2001–2015 period, we found that institutional cross‐ownership, particularly pressure insensitive cross‐ownership, positively affects firm productivity. This result suggests that the professional knowledge and monitoring experience gained by institutional cross‐owners lead them to increase firm productivity. This positive effect is less pronounced in highly competitive product markets. The results also showed that corporate social responsibility is a channel that allows institutional cross‐owners, particularly pressure insensitive cross‐owners, to influence firm productivity. This result suggests that institutional cross‐owners drive corporate social responsibility investments leading to enhanced firm productivity.

Shifting the Focus to Measurement: A Review of Socially Responsible Investing and Sustainability Indicators

An increasing number of investors is including sustainability considerations in their investment processes. This can improve both financial and corporate sustainability performance. The emergence of sustainable investing as an academic research field has been accompanied by considerable interest from the industry. Despite its importance, there is still no uniform understanding of what a socially responsible investment (SRI) comprises. There is a multitude of similar terms that are not clearly defined and delineated, accompanied by a lack of a uniform understanding of how sustainability should be measured in the investment context. The resulting confusion hinders conceptual clarity, a material barrier for both scholarly and practitioner endeavours in the field. We try to address these issues by conducting a structured literature review based on database searches and cross-reference snowballing. We aim to provide a synthesised and unified definition of SRI and ancillary terms and to draw attention to the exact sustainability measurements. We (1) outline the history of the concept, (2) concisely define SRI and related terms, (3) propose a trinomial sustainability indicator framework (the Cambridge SRI indicator framework) for conceptualisation, and (4) use this framework to provide a structured overview of sustainability indicators for SRIs.

On the neutrality of socially responsible investing: The general equilibrium perspective

This paper investigates the conditions under which socially responsible investment (SRI) is neutral from the viewpoint of general equilibrium theory. Three conditions are jointly sufficient for neutrality of SRI. First, the financial market is complete and SRI does not compromise the spanning opportunities it provides. Second, consumers' rankings of consumption bundles are unaffected by their asset holdings. Third, firms maximize shareholder value. Under an additional assumption that is satisfied, e.g., if SRI takes the form of negative screening, the taxes and transfers needed to implement a Pareto‐optimal allocation are the same as in the absence of SRI. SRI is neutral despite financial market incompleteness if there are perfect substitutes for targeted stocks.

Time-varying fund manager skills of socially responsible investing (SRI) funds in developed and emerging markets

We examine stock selectivity and timing abilities in the market-wide return, volatility and liquidity of SRI fund managers. We find that multi-dimensional fund manager skills are time-varying and persistent in the short run, with developed market funds exhibiting longer persistence in all dimensions. Fund manager skills tend to be affected by fund characteristics (i.e., expense ratio, fund size, turnover and management tenure) and market characteristics (i.e., ESG market capitalization, mandatory ESG regulation and 10–2 yield spread). Fund managers of developed (emerging) market funds outperform (underperform) the market indices. For both fund types, fund managers possess exceptional volatility and liquidity timing despite poor return timing. Moreover, fund managers focus more (less) on timing the market’s return and less (more) on picking stocks when the prospect of recession keeps increasing (decreasing). Interestingly, if fund managers attempt to time the market-wide return or liquidity, stock selectivity will be worsened by their timing behavior.

A Bibliometrics study of Social Responsible investments

A Bibliometrics study of Social Responsible investments

Performance of Social Pillar-Based Portfolio in Developing Capital Market

Research Question: This study examined the preconditions and efficiency of socially responsible investing (SRI) in the developing capital market, specifically the Belgrade Stock Exchange (BSE). Motivation: Considering the increasing trend of SRI (GSIA, 2020) and importance of information on corporate social responsibility (CSR) to investors (Miralles‐Quiros, Miralles‐Quiros, & Arraiano, 2017), especially on social issues (Giese, Nagy, & Lee, 2021), we explored the influence of applying the social criteria in asset selection on investment portfolio performance at the BSE. This study builds on the existing literature that is mostly focused on developed capital markets of Europe, the United States and Canada (Von Wallis & Klein, 2015) by analysing the issue of SRI in the developing market. The provided setup for socially driven portfolio structuring based on market trends and social performance disclosure proved to be efficient in the long-term. Idea: The core idea of this paper was to analyse the terms for SRI and empirically evaluate the performance of social pillar-based portfolio on the BSE in order to provide evidence to support the trend of SRI in developing markets. The structure of the portfolios was set using the best-in-class strategy, while the classes were determined on the basis of the stocks’ return trends. Data: The analysis was conducted using trading data and information from financial and non-financial reports of the companies listed on the BSE. Tools: Cluster analysis was used for classification of stocks, while performances of portfolios were evaluated implementing return, volatility and risk-adjusted measures. Findings: The social pillar-based portfolio outperformed the conventional one and benchmarking indices in the observed five-year period. However, mixed results were obtained in the short-term indicating that specific effects of CSR practice on financial performance of the companies in observed developing market could still be obscured. Contribution: This paper expands the existing research related to SRI in the developing markets and offers practical recommendations for potential socially conscious investors.

Between stakeholders and shareholders: Pension funds and labour solidarity in the age of sustainability

This article investigates the contribution of pension funds in harnessing the power of finance to achieve social and environmental objectives. After reviewing and discussing the potential and main hurdles to pension fund engagement in Socially Responsible Investment (SRI), the common law approach to shareholder activism is contrasted with the EU law on pension funds and on sustainability-related disclosures and taxonomies. Unlike the US and other common law jurisdictions, where the duties regarding retirement institutions are derived from trust law, EU rules on pension funds governance and investment policies are generally grounded on the more relaxed duties of corporate and financial law. On the one hand, this makes it easier for pension funds to consider the potential impact of environmental, social and governance factors (ESG) on investment decisions. On the other, social and environmental concerns are functionalised for economic purposes, thus reducing the possibilities for a more critical and strategical use of pension funds’ financial power by activists. This also explains why, despite being often participated in by trade unions, the existing governance of pension funds in Europe tends to outsource the management of investment policies to financial operators. While this takes responsibility away from the governing boards of pension funds in terms of their legal duties, the combination of decentralisation and the outsourcing of investment management undermines the possibility for unions to engage in shareholder activism, and to strike a balance between the position of workers as stakeholders and the position of workers as shareholders.

Impacts of Distributive Comparison Behavior on Corporate Social Responsibility in Supply Chains: The Role of Small Firms

Problem definition: In this paper, we explore how a firm’s concern about profit distribution and the size of downstream firms in supply chains affect corporate social responsibility (CSR) investment strategy. Methodology/results: In a supply chain consisting of one supplier and one manufacturer, both players decide whether to invest to reduce CSR violations, and they negotiate over a wholesale price. Distributive comparison behavior makes the manufacturer compare the profit with his equitable payoff, which is determined by the supplier’s profit. Advantageous (resp. disadvantageous) inequality occurs when the manufacturer’s profit is higher (resp. lower) than the manufacturer’s equitable payoff. We compare this supply chain to the one without distributive comparison behavior. We find that when advantageous inequality occurs, or when neither inequality occurs and the manufacturer’s sensitivity to the supplier’s profit is low, the manufacturer’s distributive comparison behavior makes the manufacturer less (resp. supplier more) likely to invest in CSR, which we call negative (resp. positive) impacts of distributive comparison behavior; otherwise, it makes the manufacturer more (resp. supplier less) likely to invest. In most cases, the weak bargaining power of the small manufacturer leads to larger positive or smaller negative impacts of distributive comparison behavior. Also, the low efficiency of the small manufacturer to reduce CSR violations leads to smaller negative impacts of distributive comparison behavior. Managerial implications: Our results show that governments and nongovernmental organizations (NGOs) should investigate firms’ distributive comparison behavior in supply chains. When downstream firms show the aversion to lower (resp. higher) profits than ones from upstream firms, the measures to monitor and support upstream (resp. downstream) firms’ CSR investments should be taken to avoid CSR violations. In the supply chains with small downstream firms, extra efforts should be made to induce firms’ distributive comparison behavior.Funding: M. Wang was supported partially by the National Natural Science Foundation of China [Grants 71931009 and 71671023]; X. Fang is grateful for the support under a Lee Kong Chian Fellowship and Retail Centre of Excellence Research Grant; Z. Wang was supported partially by the National Natural Science Foundation of China [Grants 72010107002, 71671023, and 72171212]; and Y. Chen was supported partially by the Research Grants Council of the Hong Kong Special Administrative Region, China [HKUST C6020-21GF].Supplemental Material: The e-companion is available at https://doi.org/10.1287/msom.2022.1172 .

How did European firms adjust their corporate social responsibility investments during the global financial crisis?

AbstractThe crisis period of 2008 triggered European firms to undertake more corporate social responsibility (CSR) activities than during non‐crisis periods in all four dimensions, governance, economic, environmental, and social. The exogenous shock of 2008 significantly reduced European companies' profitability. The crisis period triggered firms to undertake more CSR activities than non‐crisis periods in all four dimensions, governance, economic, environmental, and social. Compared to other dimensions, corporate governance received more attention, implying that firms tried to alleviate the shock's disadvantages by strengthening their governance structures.

The green and Brown performances of mutual fund portfolios

The past decade has seen an increasing interest in socially responsible investing (SRI) in the mutual fund industry. Central to this development is whether SRI funds underperform conventional funds. Using a novel approach and a sample of 2,255 mutual funds, we decompose fund portfolios into socially responsible (green) and non-socially responsible (brown) components. We find that, in comparison to the non-socially responsible component, the socially responsible portion exhibits a lower raw return, lower risk-adjusted return (alpha), lower Sharpe ratio, and similar degree of performance reversal. The magnitude of this underperformance is, however, relatively small. The results align with SRI having a limited negative impact on fund performance while potentially offering some diversification benefits.

Determinants of Global Reporting Initiative report: A comparative study between USA and European companies

The paper intends to increase the understanding of the diffusion of the Corporate Social Responsibility (CSR) report standard. It specifically investigates the main determinants which influence the decision behind publishing the CSR report according to Global Reporting Initiative (GRI) guideline standards. Two different samples were employed for the year 2019: United States (US) listed companies in S&P 500 and European companies listed in STOXX Europe 600. Three main aspects were considered regarding the potential determinants: Board of Directors (BoD) attributes, company commitment to CSR network, such as United Nations Global Compact (UNGC), and interactions with CSR management standardization institutions (such as ISO 14000). BoD's attributes comprise of three main dimensions, namely, non-executive directors, Chief Executive Officers' (CEO) duality situations, and board gender diversity (BGD). From an agency-oriented theory, US companies with more non-executive directors in BoD are more likely to publish a CSR report in accordance with GRI guideline standards. In addition, CEO duality situation is a crucial factor behind publishing a GRI report only for the US companies reducing the likelihood of companies to publish a GRI report. Furthermore, the results revealed that BGD (more women) favorably affects the decision for the CSR information dissemination under GRI requirements for both US and European companies. Under the prism of legitimacy theory, the commitment to CSR networks and the interaction with CSR management standardization institutions seems to increase the likelihood to publish GRI so as to obtain the social “license to operate” to continue their business operations. The obtained results are crucial since they provide useful implications to dominant stakeholders, mainly to shareholders and BoD, socially responsible investors (SRI) and to regulators and policymakers.