Socially responsible investing
Socially responsible investing (SRI)
In general, socially responsible investors encourage
Some rating companies focus specifically on ESG risk ratings as they can be a "valuable tool for asset managers".[7] These ratings firms evaluate companies and projects on several risk factors and typically assign an aggregate score to each company or project being rated. The firms publish reports of their ESG risk findings.
History
The origins of socially responsible investing (SRI) may date back to the
One of the most articulate early adopters of SRI was
.The modern era of socially responsible investing evolved during the
During the 1950s and 1960s,
SRI had an important role in ending the
The mid and late 1990s saw the rise of SRI's focus on a diverse range of other issues, including tobacco stocks, mutual fund proxy disclosure, and other issues.
Since the late 1990s, SRI has become increasingly defined as a means to promote environmentally sustainable development.
In 1989, representatives from the SRI industry gathered at the first
The first sell-side brokerage in the world to offer SRI research was the Brazilian bank Unibanco. The service was launched in January 2001 by Unibanco SRI analyst Christopher Wells from the São Paulo headquarters of the bank. It was targeted at SRI funds in Europe and the US, although it was sent to non-SRI funds both in and out of Brazil. The research was about environmental and social issues (but not governance issues) regarding companies listed in Brazil. It was sent for free to Unibanco's clients. The service lasted until mid-2002.
Drawing on the industry's experience using divestment as a tool against apartheid, the Sudan Divestment Task Force was established in 2006 in response to the genocide occurring in the Darfur region of the Sudan.[16] Support from the US government followed with the Sudan Accountability and Divestment Act of 2007.
More recently, some social investors have sought to address the rights of indigenous peoples around the world who are affected by the business practices of various companies. The 2007,
Current strategies
Socially responsible investing is a growing market in both the US and Europe. In particular, it has become an important principle guiding the investment strategies of various funds and accounts.[19]
Government-controlled funds
Government-controlled funds such as
In the 2000s and 2010s, pension funds were[
Mutual funds and ETFs
Socially responsible mutual funds counted by the 2014 Trends Report increased in number to 415 in 2014, up from 333 in 2012, 250 in 2010, 173 in 2005 & 2007, 189 in 2003, and 167 in 2001. The overall number of mutual funds incorporating
- Key: X = No investment; P = Positive investment; R = Restricted investment; NS = No screens.
Fund | Alcohol | Tobacco | Gambling | Defense/ Weapons | Animal Testing | Products/ Services | Environment | Human Rights | Labor Relations | Employment/ Equality | Community Investment | Proxy Voting |
Access Capital Strategies Community Investment Fund[26] | NS | NS | NS | NS | NS | NS | NS | NS | NS | NS | P | X |
AHA Balanced Fund – Institutional Class | NS | X | NS | NS | NS | NS | NS | NS | NS | NS | NS | V |
AHA Diversified Equity Fund – Institutional Class | NS | X | NS | NS | NS | NS | NS | NS | NS | NS | NS | V |
AHA Diversified Equity Fund – N Class | NS | X | NS | NS | NS | NS | NS | NS | NS | NS | NS | V |
AHA Full Maturity Fixed Income Fund – Institutional Class | NS | X | NS | NS | NS | NS | NS | NS | NS | NS | NS | V |
AHA Full Maturity Fixed Income Fund – N Class | NS | X | NS | NS | NS | NS | NS | NS | NS | NS | NS | V |
AHA Limited Maturity Fixed Income Fund – Institutional Class | NS | X | NS | NS | NS | NS | NS | NS | NS | NS | NS | V |
AHA Limited Maturity Fixed Income Fund – N Class | NS | X | NS | NS | NS | NS | NS | NS | NS | NS | NS | V |
AHA Socially Responsible Equity I | X | X | X | X | NS | P | P | P | P | P | NS | V |
AHA Socially Responsible Equity N | X | X | X | X | NS | P | P | P | P | P | NS | V |
Appleseed Fund[1] | R | R | R | R | NS | NS | P | P | P | NS | P | V |
Ariel Appreciation Fund [2] | NS | X | NS | X | NS | NS | NS | NS | NS | NS | NS | V |
Ariel Focus Fund | NS | X | NS | X | NS | NS | NS | NS | NS | NS | NS | V |
Ariel Fund | NS | X | NS | X | NS | NS | NS | NS | NS | NS | NS | V |
Azzad Ethical Income Fund [3] | X | X | X | X | NS | NS | NS | NS | NS | NS | NS | V |
Azzad Ethical Mid Cap Fund | X | X | X | X | NS | NS | NS | NS | NS | NS | NS | V |
Brighter Student Fund [4] | X | X | X | X | X | X | X | X | X | P | X | X |
'Fund' | Alcohol | Tobacco | Gambling | Defense/ Weapons | Animal Testing | Products/ Services | Environment | Human Rights | Labor Relations | Employment/ Equality | Community Investment | Proxy Voting |
Calvert Aggressive Allocation Fund [5] | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Capital Accumulation A [6] | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Capital Accumulation B [7] | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Capital Accumulation C [8] | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Conservative Allocation Fund [9] | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Global Alternative Energy Fund A [10] | NS | NS | NS | NS | NS | P | P | P | P | P | NS | V |
Calvert Global Water Fund [11] | X | NS | NS | X | NS | X | NS | P | NS | NS | NS | V |
Calvert International Opportunities Fund [12] | R | R | NS | NS | NS | P | P | P | P | P | NS | V |
Calvert Large Cap Growth A | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Large Cap Growth B | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Large Cap Growth C | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Large Cap Growth I | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Mid Cap Value Fund | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Moderate Allocation Fund | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert New Vision Small Cap A | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert New Vision Small Cap B | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert New Vision Small Cap C | X | X | X | R | R | P | P | P | P | P | P | V |
'Fund' | Alcohol | Tobacco | Gambling | Defense/ Weapons | Animal Testing | Products/ Services | Environment | Human Rights | Labor Relations | Employment/ Equality | Community Investment | Proxy Voting |
Calvert Small Cap Value Fund | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Index A | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Index B | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Index C | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Index I | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Investment Balanced A | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Investment Balanced C | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Investment Bond A | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Investment Enhanced Equity A | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Investment Enhanced Equity B | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Investment Enhanced Equity C | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Investment Equity A | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Investment Equity C | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert Social Investment Equity I | X | X | X | R | R | P | P | P | P | P | P | V |
Calvert World Values International A | X | X | NS | R | NS | P | P | P | P | P | P | V |
Calvert World Values International C | X | X | NS | R | NS | P | P | P | P | P | P | V |
CRA Qualified Investment [13] | NS | NS | NS | NS | NS | NS | NS | NS | NS | NS | P | X |
'Fund' | Alcohol | Tobacco | Gambling | Defense/ Weapons | Animal Testing | Products/ Services | Environment | Human Rights | Labor Relations | Employment/ Equality | Community Investment | Proxy Voting |
Domini European PacAsia Social Equity A [14] | X | X | X | X | NS | P | P | P | P | P | NS | V |
Domini European PacAsia Social Equity I [15] | X | X | X | X | P | P | P | P | P | P | NS | V |
Domini European Social Equity A | X | X | X | X | NS | P | P | P | P | P | NS | V |
Domini European Social Equity I | X | X | X | X | NS | P | P | P | P | P | NS | V |
Domini Institutional Social Equity | X | X | X | X | NS | P | P | P | P | P | NS | V |
Domini PacAsia Social Equity A | X | X | X | X | NS | P | P | P | P | P | NS | V |
Domini PacAsia Social Equity I | X | X | X | X | NS | P | P | P | P | P | NS | V |
Domini Social Bond [16] | X | X | X | X | NS | P | P | P | P | P | P | V |
Domini Social Equity A | X | X | X | X | NS | P | P | P | P | P | NS | V |
Domini Social Equity I | X | X | X | X | NS | P | P | P | P | P | NS | V |
Epiphany Faith and Family Values 100 Fund – A Class [17][18] | R | R | R | R | NS | NS | P | P | P | P | NS | V |
Epiphany Faith and Family Values 100 Fund – C Class | R | R | R | R | NS | NS | P | P | P | P | NS | V |
Epiphany Faith and Family Values 100 Fund – N Class | R | R | R | R | NS | NS | P | P | P | P | NS | V |
Gabelli SRI Green Fund Inc A[27] | R | R | R | X | NS | P | P | NS | NS | NS | NS | V |
Gabelli SRI Green Fund Inc AAA [27] | R | R | R | X | NS | P | P | NS | NS | NS | NS | V |
Gabelli SRI Green Fund Inc C | R | R | R | X | NS | P | P | NS | NS | NS | NS | V |
Gabelli SRI Green Fund Inc I | R | R | R | X | NS | P | P | NS | NS | NS | NS | V |
Green Century Balanced [19] | NS | X | NS | R | R | P | P | NS | NS | NS | NS | V |
Green Century Equity | X | X | X | R | NS | P | P | P | P | P | NS | V |
Integrity Growth and Income Fund [20] | X | X | X | NS | R | NS | P | R | R | R | NS | V |
'Fund' | Alcohol | Tobacco | Gambling | Defense/ Weapons | Animal Testing | Products/ Services | Environment | Human Rights | Labor Relations | Employment/ Equality | Community Investment | Proxy Voting |
Legg Mason Prt Social Awareness Fund A | NS | R | NS | R | NS | NS | P | P | P | P | NS | V |
Legg Mason Prt Social Awareness Fund B | NS | R | NS | R | NS | NS | P | P | P | P | NS | V |
Merrion Stockbrokers Social Awareness Fund C | NS | R | NS | R | NS | NS | P | P | P | P | NS | V |
Praxis Growth Index Fund A [21] |
X | X | X | X | NS | P | P | P | P | P | P | V |
Praxis Growth Index Fund I | X | X | X | X | NS | P | P | P | P | P | P | V |
Praxis Impact Bond Fund A | X | X | X | X | NS | P | P | P | P | P | P | V |
Praxis Impact Bond Fund I | X | X | X | X | NS | P | P | P | P | P | P | V |
Praxis International Index Fund A | X | X | X | X | NS | P | P | P | P | P | P | V |
Praxis International Index Fund I | X | X | X | X | NS | P | P | P | P | P | P | V |
Praxis Small Cap Index Fund A | X | X | X | X | NS | P | P | P | P | P | P | V |
Praxis Small Cap Index Fund I | X | X | X | X | NS | P | P | P | P | P | P | V |
Praxis Value Index Fund A | X | X | X | X | NS | P | P | P | P | P | P | V |
Praxis Value Index Fund I | X | X | X | X | NS | P | P | P | P | P | P | V |
Neuberger Berman Socially Resp Inv [22] | X | X | X | X | R | P | P | P | P | P | NS | V |
New Alternatives Fund [23] | X | X | X | X | X | P | P | P | P | P | P | X |
'Fund' | Alcohol | Tobacco | Gambling | Defense/ Weapons | Animal Testing | Products/ Services | Environment | Human Rights | Labor Relations | Employment/ Equality | Community Investment | Proxy Voting |
Parnassus Core Equity Fund [24] | X | X | X | X | R | P | P | P | P | P | NS | V |
Parnassus Fund [25] | X | X | X | X | R | P | X | P | P | P | P | V |
Parnassus Income Fixed Income [26] | X | X | X | X | R | P | X | P | P | P | NS | V |
Parnassus Mid Cap Fund [27] | X | X | X | X | R | P | P | P | P | P | P | V |
Parnassus Small Cap Fund | X | X | X | X | R | P | X | P | P | P | P | V |
Parnassus Endeavor Fund | X | X | X | X | R | P | X | P | P | P | P | V |
Pax World Balanced | R | X | R | R | R | P | P | P | P | P | P | V |
Pax World Growth | R | X | R | R | R | P | P | P | P | P | NS | V |
Pax World High Yield | R | X | R | R | R | P | P | P | P | P | P | V |
Pax World Value Fund – Individual Investor | NS | X | R | X | R | P | P | P | P | P | NS | V |
Pax World Value Fund – Institutional Class | NS | X | R | X | R | P | P | P | P | P | NS | V |
Pax World Women's Equity Fund – Individual Investor | NS | X | R | X | R | R | R | NS | R | R | NS | V |
Pax World Women's Equity Fund – Institutional Class | NS | X | R | X | R | R | R | R | R | R | NS | V |
Portfolio 21 [28] | NS | X | R | R | R | P | P | R | R | R | P | V |
Portfolio 21 Institutional [29] | NS | X | R | R | R | P | P | R | R | R | NS | V |
Sentinel Sustainable Core Opportunities Fund [30] | X | X | X | R | R | P | P | P | P | P | NS | V |
Sentinel Sustainable Emerging Companies Fund | X | X | X | R | R | P | P | P | P | P | NS | V |
SPDR Gender Diversity Index ETF (SHE) | X | X | X | X | X | X | X | P | P | P | NS | V |
TIAA-CREF |
R | R | R | R | NS | P | P | P | P | P | NS | V |
Flex Total Return Utilities Fund [31] | X | X | X | X | X | P | P | NS | P | P | NS | V |
Vanguard FTSE Social Index Fund [32] | X | X | X | X | X | NS | X | X | NS | NS | NS | NS |
WVH Ethical Inc. Social Balanced Fund | X | X | R | X | R | P | P | P | P | P | P | V |
WVH Ethical Inc. Social Equity Fund | X | X | R | X | R | P | P | P | R | P | X | V |
WVH Ethical Inc. Green Growth Fund [33] | R | R | R | R | R | P | P | NS | NS | NS | NS | V |
xRussell 3000[28] | NS | NS | NS | NS | NS | NS | NS | NS | NS | NS | NS | X |
Separately managed accounts
According to the 2014 Report on US Sustainable, Responsible and Impact Investing Trends, among separate account managers, 214 distinctive separate account vehicles or strategies, with $433 billion in assets, incorporated ESG factors into investment analysis. Where a separate account is subject to ERISA, there are legal limitations on the extent to which investment decisions can be based on factors other than maximizing plan participants' economic returns.[24]
Shareholder resolutions are filed by a wide variety of institutional investors, including public pension funds, faith-based investors, socially responsible mutual funds, and labor unions. In 2004, faith-based organizations filed 129 resolutions, while socially responsible funds filed 56 resolutions.[29]
Regulations governing shareholder resolutions vary from country to country. In the
These regulatory regimes require pension plans and
From 2012 to 2014, more than 200 US institutions and investment management firms filed or co-filed proposals. These institutions and money managers collectively controlled $1.72 trillion in assets at the end of 2013. The top categories of environmental and social issues from 2012 to 2014 were political contributions and climate change and environmental issues.[33]
Community investing
Community investing, a subset of socially responsible investing, allows for investment directly into community-based organizations. Community investing institutions use investor capital to finance or guarantee loans to individuals and organizations that have historically been denied access to capital by traditional financial institutions. These loans are used for housing, small business creation, and education or personal development in the US and UK,[34] or are made available to local financial institutions abroad to finance international community development. The community investing institution typically provides training and other types of support and expertise to ensure the success of the loan and its returns for investors.[35]
Community investing grew almost 5% from 2012 to 2014. Assets held and invested locally by community development financial institutions (CDFIs) based in the US totaled $64.3 billion at the start of 2014, up from $61.4 billion in 2012.
Investing strategies
Investing in capital markets
Social investors use several strategies to maximize financial return and attempt to maximize social good. These strategies seek to create change by shifting the cost of capital down for sustainable firms and up for the non-sustainable ones. The proponents argue that access to capital is what drives the future direction of development. A growing number of rating agencies collects both raw data the ESG behaviour of firms as well as aggregates this data in indices.[36] After several years of growth the rating agency industry has recently been subject to a consolidation phase that has reduced the number of genesis through mergers and acquisitions.[37]
ESG integration
ESG integration is one of the most common responsible investment strategies and entails the incorporation of
- Management: Who is responsible for ESG integration within the organization?
- Research: What ESG criteria and factors are being considered in the analysis?
- Application: How are the ESG criteria being applied in practice?
Negative screening
Negative screening excludes certain securities from investment consideration based on social or environmental criteria. For example, many socially responsible investors screen out tobacco company investments.[39]
The longest-running SRI index, the Domini 400—now the
Various academic studies have found positive, negative, and neutral associations between SRI fund orientation and financial performance.[41][42]
Divestment
Divesting is the act of removing stocks from a portfolio based on mainly ethical, non-financial objections to certain business activities of a corporation. Recently, CalSTRS (California State Teachers' Retirement System) announced the removal of more than $237 million in tobacco holdings from its investment portfolio after six months of financial analysis and deliberations.
A less vocal subtype of
Positive investing
Positive investing is the new generation of socially responsible investing.
Impact investing
Community investment
By investing directly in an institution, rather than purchasing stock, an investor is able to create a greater social impact: money spent purchasing stock in the secondary market accrues to the stock's previous owner and may not generate social good, while money invested in a community institution is put to work. For example, money invested in a
Global context
Socially responsible investing is a global phenomenon. With the international scope of business itself, social investors frequently invest in companies with international operations. As international investment products and opportunities have expanded, so have international SRI products. The ranks of social investors are growing throughout developed and developing countries. In 2006, the United Nations Environment Programme launched its Principles for Responsible Investment which provide a framework for investors to incorporate environmental, social, and governance (ESG) factors into the investment process. PRI has more than 1,500 signatories managing more than US$60 trillion of assets.[55]
The Global Sustainable Investment Alliance (GSIA) is a collaboration of membership-based sustainable investment organisations around the world including the European Sustainable Investment Forum (Eurosif), UK Sustainable Investment and Finance Association (UKSIF), the Responsible Investment Association Australasia (RIAA), Responsible Investment Association (RIA Canada), the Forum for Sustainable and Responsible Investment (US SIF), Dutch Association of Investors for Sustainable Development (VBDO) and Japan Sustainable Investment Forum. The GSIA's mission is to deepen the impact and visibility of sustainable investment organizations at the global level.
The Global Sustainable Investment Review 2018, the fourth edition of this biennial report, continues to be the only report collating results from the market studies of regional sustainable investment forums from Europe, the United States, Japan, Canada, and Australia and New Zealand. It provides a snapshot of sustainable investing in these markets at the start of 2018 by drawing on the in-depth regional and national reports from GSIA members: Eurosif, Japan Sustainable Investment Forum (JSIF), Responsible Investment Association Australasia, RIA Canada and US SIF. This report also includes data on the African sustainable investing market, from the African Investing for Impact Barometer, and on Latin America from the Principles for Responsible Investment.
The 2018 report shows that globally, sustainable investing assets in the five major markets stood at US$30.7 trillion at the start of 2018, a 34% increase in two years. From 2016 to 2018, the fastest growing region has been Japan, followed by Australia/New Zealand and Canada. These were also the three fastest growing regions in the previous two-year period. The largest three regions— based on the value of their sustainable investing assets—were Europe, the United States and Japan.
An 2020 global analysis from Morningstar indicates that assets in sustainable funds reached nearly, $1.7 trillion.[56] Net flows into U.S. sustainable funds surpassed $51 billion.[57][58]
ESG ratings agencies
Asset managers and other financial institutions increasingly rely on ESG ratings agencies to assess, measure and compare companies' ESG performance.[59] Sustainalytics, RepRisk are two examples of dedicated ESG ratings agencies, while global credit agencies like S&P Global are also seeing the value to adding ESG ratings to their data offerings.[60]
Responsible, ethical and impact investing in Australia
According to the Responsible Investment Association Australasia's annual Responsible Investment Benchmark Report Australia 2020, in 2019 and for a 19th consecutive year, funds managed under responsible investment approaches grew as a proportion of total professionally managed investments in Australia to AU$1,149 billion in assets under management, a rise of 17% from 2018. Ever more investment managers are applying a range of responsible investing approaches – from ESG integration and negative screening to sustainability-themed and impact investing.
The report shows that in Australian and multi-sector responsible investment funds outperformed mainstream funds over 1, 3, 5 and 10 year time horizons.
Australian responsible investment managers still favour ESG integration and corporate engagement and voting above negative and norms-based screening as their primary responsible investment approaches for constructing portfolios, but managers are increasingly driving capital towards sustainability-themed and impact investing allocations with allocations to Green, Social and Sustainability Bonds more than doubling since last year.
Negative screening of fossil fuels by the responsible investment industry is beginning to catch up to consumer interest. In 2018, only 5% of responsible investment AUM for survey respondents who conduct negative screening was screened for fossil fuels. In 2019, 19% of responsible investment AUM has been screened for fossil fuels, growing 14 percentage points from the year before. For consumers using RIAA's Responsible Returns search and compare tool for ethical investments, the most important exclusionary screens are fossil fuels, human rights abuses and armaments.
Responsible, ethical and impact investing in New Zealand
The Responsible Investment Association Australasia's annual Responsible Investment Benchmark Report New Zealand 2020 details the size, growth, depth and performance of the New Zealand responsible investment market over 12 months to 31 December 2019 and compares these results with the broader New Zealand financial market. In 2019, funds managed under responsible investment approaches grew as a proportion of total professionally managed investments in New Zealand to NZ$153.5 billion in 2019. This represents 52% of the estimated NZ$296 billion of total professionally managed assets under management in New Zealand.
Increasingly, responsible investors in New Zealand have shifted their focus from screening out harmful industries such as tobacco and armaments, to considering broader environmental, social and corporate governance (ESG) factors when investing. Impact investing has grown over 13 times from NZ$358 million in 2018 to NZ$4.74 billion in 2019. Green, Social and Sustainability (GSS) Bonds account for 88% of products using this approach.
Ethical investment in the UK
In 1985, Friends Provident launched the first ethically screened investment fund with criteria which excluded tobacco, arms, alcohol and oppressive regimes.[61] Since 1985, over 90 investment funds have launched offering a wide range of investment criteria; both negatively screened and with positive investment criteria i.e. investing into companies involved in promoting sustainability.
Since 1985, most of the major investment organizations have launched ethical and socially responsible funds, although this has led to a great deal of discussion and debate over the use of the term "ethical" investment.[62] This is because each of the fund management organizations tend to apply a slightly different approach to running their funds.
In recent years there has been growth in the market for high social impact investments; this is a style of investing where the businesses receiving investment have social or environmental goals as a primary purpose.[citation needed][63]
UK institutions are also getting more involved in social investing through impact investing funds, with those such as
As of June 2014, EIRIS estimated that there was over £13.5 billion invested in Britain's green and ethical retail funds. This estimate is based on around 85 UK domiciled green or ethical retail funds and it seeks to not include UK money invested in ethical funds domiciled outside of the UK.[64]
In higher education
In 2007, the Dwight Hall organization at Yale University launched the first undergraduate-run socially responsible investment fund in the United States, known as the Dwight Hall Socially Responsible Investment Fund.[65][66]
Comparison with conventional investing
While conventional investing only focuses on the traditional risk and returns considerations in making investment decisions, socially responsible investing considers other ethical factors as discussed above. Hence, the question often arise as to whether it pays financially to be ethical or not in making investment decisions. The debate as to whether there is anything to gain or lose by deciding to be ethical and socially responsible in making investment decisions is still ongoing. Several studies have found that there is no conclusive evidence as to whether the performances of socially responsible investments outperform those of conventional and vice versa.
Comparing portfolio and fund performance
Several studies in various places have analysed the performance of socially responsible investing (SRI) and conventional investing (CI) using different models and methodologies for measuring performance. Using the Carhart four-factor model,[67] found that an approach where stocks with high SRI scores are bought while those with low SRI scores are sold off produced a positive abnormal performance of up to 8.7% per annum, suggesting that investors can achieve their ethical goals without hurting their financial performance.[68] also using the Carhart four-factor model, noted an excess return of 7% for environmentally-friendly firms. However,[69] using a similar approach found the performance of SRI stocks to be not statistically different from those of conventional stocks. In contrast,[70] also using the Carhart four-factor model found a portfolio which included "sin stocks" (alcohol, tobacco, gaming) to be significantly outperforming similar comparable stocks, which indicates that investors in SRI stocks might be losing. However, after controlling for managerial skills, transaction costs and fees,[71] found no outperformance between portfolios which include "sin" stocks and comparable SR portfolios. Some other studies have compared the performance of SRI funds with conventional funds. While some studies used only the capital asset pricing model to compare performance[72][73]), others used multifactor models such as the Fama–French three-factor model and Carhart four-factor model.[74][75][76][77][78][79][80] These studies found no statistically significant difference in performance between the SRI and conventional funds.
Comparing stock market index performance
Considering that difference in performance of funds may be due to portfolio selection/construction process and/or the ability of fund managers and not necessarily on the nature of investments themselves, some studies have compared the performance of
A more recent study showed that "improvements in CSR reputation enhance profits".[86]
See also
- Blended value
- Business ethics
- Community wind energy
- Corporate social responsibility
- Climate-related asset stranding
- Development impact bond
- Disinvestment
- Eco-investing
- Environmental, social and corporate governance
- Ethical banking
- Fossil fuel divestment
- Integrated reporting
- Impact investing
- Microfinance
- Philanthrocapitalism
- Sharia investments
- Social finance
- Social impact bond
- Social responsibility
- Sustainable development
- Sustainable finance
- Terror-free investing
- Vice Fund
Notes
- ^ Also termed "responsible", "sustainable", "social", or "ethical" investing.
References
- ^ Hirst, Scott (2016-10-01). "Social Responsibility Resolutions". The Harvard Law School Program on Corporate Governance Discussion Paper. No. 2016-06.
{{cite journal}}
:|volume=
has extra text (help) - ^ C. Logue, Ann. Socially Responsible Investing for Dummies. Wiley. p. 196.
- ^ Lemke and Lins, Regulation of Investment Advisers §2:158 (Thomson West, 2014)
- ^ Sullivan, Paul With Impact Investing, a Focus on More Than Returns, April 23, 2010
- ^ Bradley, Theresa Finally, socially responsible investors can measure their impact, September 24, 2011
- The Huffington Post. Retrieved 26 November 2011.
- ^ "ESG ratings are not perfect, but can be a valuable tool for asset managers - KPMG China". KPMG. 2020-10-07. Archived from the original on 2020-11-29. Retrieved 2021-01-26.
- ^ "The Evolution of Socially Responsible Investing". Retrieved 30 October 2006.
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- ISSN 0378-4266.
- S2CID 170000354.
External links
- UN Principles for Responsible Investment
- Moskowitz Prize -Quantitative Research in the field of Socially Responsible Investing
- Socially Responsible Investing at Appropedia
- Socially Responsible Investing Basics from the Forum for Sustainable and Responsible Investment
- The World Bank (2010), Water and Climate Change: Understanding the Risks and Making Climate-Smart Investment Decisions.
- Invest with Values – The Investor's Gateway to Socially Responsible Investing resources, topics and organizations