Socially Responsible Investing: A Critical Appraisal

This paper makes three important points regarding socially responsible investing. First, the current methodology involving SRI fund divestiture of the securities of firms that engage in socially irresponsible activity often results in unacceptable unintended consequences. Second, in many cases the proper methodolgy for SRI funds may be purposely to include the securities of such firms in the portfolio in an effort to internalize socially irresponsible interfirm spillovers. Finally, that SRI fund managers may be able to bond their performance by organizing as closed-end funds subject to takeover and liquidation if the stated socially responsible objectives are not met.     

The Performance of European Socially Responsible Funds

Recent years have witnessed an increasing growth in mutual funds that invest according to social criteria. As a consequence, the financial performance of these portfolios has attracted the interest of academics and practitioners. This paper investigates the performance of a sample of socially responsible mutual funds from seven European countries investing globally and/or in the European market. Using unconditional and conditional models, we assess the performance of these funds in comparison to conventional and socially responsible benchmark portfolios. The results show that European socially responsible funds present in general neutral performance in relation to both conventional and socially responsible benchmarks. However, performance estimates seem to be slightly higher when funds are evaluated in relation to socially responsible indices. Our results also show that socially responsible funds are more exposed to conventional than to socially responsible indices. Furthermore, conventional benchmarks are better able to explain fund returns than socially responsible benchmarks. These findings are robust to both unconditional and conditional models of performance. We also observe that conditional models lead to a slight improvement of performance estimates and to the explanatory power of the models, both when conventional and socially responsible benchmarks are considered. This is consistent with most previous empirical findings on conditional performance evaluation. Our results show that investors who wish to hold European funds can add social screens to their investment choices without compromising financial performance.     

Socially Responsible Institutional Investment in Private Equity

This article studies institutional investor allocations to the socially responsible asset class. We propose two elements influence socially responsible institutional investment in private equity: internal organizational structure, and internationalization. We study socially responsible investments from Dutch institutional investments into private equity funds, and compare socially responsible investment across different asset classes and different types of institutional investors (banks, insurance companies, and pension funds). The data indicate socially responsible investment in private equity is 40–50% more common when the decision to implement such an investment plan is centralised with a single chief investment officer. Socially responsible investment in private equity is also more common among institutional investors with a greater international investment focus, and less common among fund-of-fund private equity investments.     

Screening: Value enhancing or diminishing?

Using an international sample of environmental and social firm-level ratings between 2007 and 2019, we form synthetic overlapping region-based equity portfolios to examine the impact of screening stringency on abnormal returns and specific risk. While previous literature analyzes this relationship in a bidimensional setting, inferences made in this study are additionally robust to regional levels of market efficiency. Our results suggest that (1) screening stringency displays an inverted curvilinear relationship with risk-adjusted returns and (2) the impact on specific risk is strictly increasing. Thus, portfolios that employ marginal and substantial screening incur the cost of responsible investing. However, moderate screening has the benefit of increasing performance without the burden of financing the least responsible corporations.     

Varieties of CSR: Institutions and Socially Responsible Behaviour

A central concern within contemporary socio-economics has been on the relationship between national institutional configurations and societal outcomes. In this paper, we assess the relationship between legal origin and a range of correlated indicators of social responsibility, focusing on socially responsible investing and voluntary charitable giving. We found that in Common Law contexts, lower levels of social responsibility than in Civil Law contexts, other than in the area of charitable giving, where the converse was the case. We explore the reasons for this distinction, and for the different patterns encountered in post-socialist Central and Eastern Europe. Based on the findings, we identify directions for future research.     

The Heterogeneity of Socially Responsible Investment

Many writers have commented on the heterogeneity of the socially responsible investment (SRI) movement. However, few have actually tried to understand and explain it, and even fewer have discussed whether the opposite – standardisation – is possible and desirable. In this article, we take a broader perspective on the issue of the heterogeneity of SRI. We distinguish between four levels on which heterogeneity can be found: the terminological, definitional, strategic and practical. Whilst there is much talk about the definitional ambiguities of SRI, we suggest that there is actually some agreement on the definitional level. There are at least three explanations which we suggest can account for the heterogeneity on the other levels: cultural and ideological differences between different regions, differences in values, norms and ideology between various SRI stakeholders, and the market setting of SRI. Discussing the implications of the three explanations for the SRI market, we suggest that there is reason to be sceptical about the possibilities of standardisation if not standardisation is imposed top-down. Whether this kind of standardisation is desirable or not, we argue, depends on what the motives for it would be. To the extent that standardisation may facilitate the mainstreaming of SRI, it could be a good thing – but we entertain doubts about whether mainstreaming really requires standardisation.     

Investing in Socially Responsible Companies is a must for Public Pension Funds – Because there is no Better Alternative

>With assets of over US$1.0 trillion and growing, public pension funds in the United States have become a major force in the private sector through their holding of equity positions in large publicly traded corporations. More recently, these funds have been expanding their investment strategy by considering a corporations long-term risks on issues such as environmental protection, sustainability, and good corporate citizenship, and how these factors impact a companys long-term performance. Conventional wisdom argues that the fiduciary responsibility of the pension funds trustees must be solely focused on their beneficiaries and, therefore, their investment criteria must be based strictly on narrowly defined financial measures. It is also asserted that well-established financial measurements of corporate performance already include long-term risk assessment through discounted present value of future flow of earnings. Consequently, all other criteria are contrary to the best interest of the pension funds beneficiaries. In this paper, we assert that, contrary to conventional wisdom, pension funds, and for that matter other mutual funds, must be concerned with the long-term survival and growth of corporations. These measures are generally referred to socially responsible investing (SRI) and when applied to corporations, it is termed socially responsible corporate conduct (SRCC). We demonstrate that current measurement of future risk assessment invariably understates, and quite often completely overlooks, these long-term risks because of the inherent bias towards short-run on the part of financial intermediaries whose compensation depends greatly on short-term results. Furthermore, there is ample evidence to suggest that these intermediaries have been engaging in self-serving practices and thus failing in their duties to serve their clients, i.e. pension funds, best interests. Because of their large holdings in the total market as well as individual companies, these funds cannot easily divest from poorly performing companies without destabilizing the companies stock and overall markets. Hence, they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long-term aspects of their operations in terms of their impact on environment, sustainability, and community welfare, to name a few. We argue that an exclusionary, and even a primary, focus on short-term financial criteria is no longer a viable option. It also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance. Thus socially responsible investing practices are not merely discretionary and desirable activities; they are a necessary imperative, which both the corporations and public pension funds, and other large institutional holders, will ignore at serious peril to themselves. Finally, the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities. It also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long-term corporate survival and growth in the context of a changing economic, environmental and socio-political dynamic.     

Researching the Drivers of Socially Responsible Purchasing: A Cross-National Study of Supplier Diversity Initiatives

What drives organisations to engage in socially responsible purchasing initiatives? To investigate this important question, this article uses a case-study approach to examine the context within which supplier diversity programmes have emerged in both the U.S. and U.K. The analysis identifies legislative and policy developments, economic imperatives, stakeholder pressures and ethical influences as forces shaping organisational responses. It reveals important contextual differences between U.K. and U.S. experience and offers an empirical and theoretical explanation of corporate behaviour.     

The Ethical Mutual Fund Performance Debate: New Evidence from Canada

Although the academic interest in ethical mutual fund performance has developed steadily, the evidence to date is mainly sample-specific. To tackle this critique, new research should extend to unexplored countries. Using this as a motivation, we examine the performance and risk sensitivities of Canadian ethical mutual funds vis-à-vis their conventional peers. In order to overcome the methodological deficiencies most prior papers suffered from, we use performance measurement approaches in the spirit of Carhart (1997, Journal of Finance 52(1): 57–82) and Ferson and Schadt (1996, Journal of Finance 51(2): 425–461). In doing so, we investigate the aggregated performance and investment style of ethical and conventional mutual funds and allow for time variation in the funds’ systematic risk. Our␣Canadian evidence supports the conjecture that any␣performance differential between ethical mutual funds and their conventional peers is statistically insignificant.      

Approaching Socially Responsible Investment with a Comprehensive Ratings Scheme: Total Social Impact

The socially responsible investment industry (SRI) is slowly changing from a screening, avoidance paradigm to a comprehensive paradigm that seeks to affect corporate behavior. Credible rating systems are a key component of this sea change. Reliable and recognizable social and environmental metrics are critical to this progress. The Total Social Impact (TSI) rating approach is a new social metric scheme based on a comprehensive rating of stakeholder issues. This paper describes the evolution of SRI ratings and the role that TSI hopes to play in affecting business behavior by promoting principled business leadership.     

Costly Signaling: Asian Americans and the Role of Ethnicity in the Willingness to Pay More for Socially Responsible Products

The present study applies motivated reasoning and costly signaling theory to examine whether consumers transfer stereotypical race-related attributes to their evaluations of companies' socially responsible advertisements. The study compares corporate socially responsible advertisements featuring different model races and cultural cues in order to meet consumers' motives to impress others by supporting CSR initiatives. Results (N = 754) of a 2 × 2 × 4 experiment reveal that strong ethnic identifiers among Asian Americans are more likely to make a costly signaling behavior when ads feature a white model with white cultural cues by attributing higher social status to whites' images, which is mediated by conspicuous consumption motives. Interestingly, ethnic identification among white Americans is also a strong predictor in making costly signaling behavior with socially responsible products.     

The Role of Idealism and Relativism as Dispositional Characteristics in the Socially Responsible Decision-Making Process

This study investigated how decision-makers differ in processing their organizational environment (peers and organizational control systems), depending on the levels of their idealism and relativism. Focusing on socially responsible buying/sourcing issues, responses from buying/sourcing professionals from U.S. apparel and shoe companies were analyzed, using a series of regression analyses. The results generally supported the proposition that the degrees of idealism and relativism determine involvement levels that, in turn, result in varying levels of reactions to the organizational environment and corresponding amounts of information processing. Highly idealistic (relativistic) individuals were influenced by only idealistic (relativistic) signals of organizational environment. Further analysis showed highly idealistic and relativistic individuals were more likely to evaluate the organizational environment in terms of its business merit. The results suggest that organizations need to carefully plan how to communicate underlying meanings of organizational initiatives with their employees, knowing that individuals who have strong ethical opinions will only react to what they believe and elaborate its value for business. Further theoretical and practical implications and suggestions are discussed.Haesun Park is Assistant Professor in the School of Human Ecology at Louisiana State University. She received her Ph.D. from the Dept. of Consumer and Textile Sciences, the Ohio State University in 2001. Her research interests include fair labor management and international sourcing in the textiles and apparel industries.     

Investment with a Conscience: Examining the Impact of Pro-Social Attitudes and Perceived Financial Performance on Socially Responsible Investment Behavior

This article addresses the growing industry of retail socially responsible investment (SRI) profiled mutual funds. Very few previous studies have examined the final consumer of SRI profiled mutual funds. Therefore, the purpose of this study was to, in an exploratory manner, examine the impact of a number of pro-social, financial performance, and socio-demographic variables on SRI behavior in order to explain why investors choose to invest different proportions of their investment portfolio in SRI profiled funds. An ordinal logistic regression analysis on 528 private investors revealed that two of the three pro-social variables had a positive impact on how much the consumer invested in SRI profiled funds. Moreover, there was proof of a non-altruistic motive for investing in SRI as consumers who perceive that financial return of SRI is equal or better than “regular” mutual funds, invested a greater proportion of their portfolio in SRI profiled mutual funds. Furthermore, the results showed that women and better-educated investors were more likely to invest a greater proportion of their investment portfolio in SRI. Overall, the findings indicate that both financial perceptions and pro-social attitudes are connected to consumer investment in SRI.     

The Financial Performance of a Socially Responsible Investment Over Time and a Possible Link with Corporate Social Responsibility

This paper empirically examines the financial performance of a UK unit trust that was initially “conventional” and later adopted socially responsible investment (SRI) principles (ethical investment principles). Comparison is made with three similar conventional funds whose investment objectives remained unchanged. Analysis techniques employed in previous studies find similar results: mean risk-adjusted performance is unchanged by the switch to SRI, with no evidence of over-or under-performance relative to the benchmark market index by any of the four funds. More interestingly, changes in variability of returns over time are also modelled using generalised autoregressive conditional heteroscedasticity models, not previously applied to SRI funds so far as is known. Results show a temporary increase in variability of returns, followed by a return to previous levels after around 4 years. Evidence shows the increased variability to be associated with the adoption of SRI rather than with a change in fund management. Possible explanations for the subsequent reduction in variability include the spread of corporate social responsibility activities by firms and learning by fund managers. In addition to reporting on a previously unobserved phenomenon, this paper raises questions for further research.     

Four decades of negative word-of-mouth and negative electronic word-of-mouth: A morphological analysis

Customers voice their negative brand experiences to their family and friends in the form of negative word-of-mouth (NWOM). Web 2.0 enables the sharing of NWOM in electronic format on various social media sites, online customer review forums, and blogs, which is known as negative electronic word-of-mouth (NeWOM). Researchers need to study the spread of NWOM/NeWOM to prevent adverse consequences for companies and suggest an optimal response for its redressal. Existing literature review studies have focused on word-of-mouth (WOM) and electronic WOM (eWOM) and have considered both positive and negative WOM and eWOM concurrently. Past literature reviews have captured the breadth of the WOM domain, ignoring the depth. This research article contains a review of 282 journal papers capturing the depth of the extant literature by focusing solely on ‘negative’ WOM and eWOM (NWOM and NeWOM), and presents a broad view of the NWOM and NeWOM domains using morphological analysis (MA). This will help to conceptualize and categorize the existing state-of-the-art literature into broad dimensions and identify future research opportunities. The MA framework helps to bifurcate this literature into the following four dimensions: (i) nomenclature of NWOM and NeWOM, (ii) antecedents of NWOM/NeWOM, (iii) impacts of NWOM/NeWOM, and (iv) prevention and recovery response to NeWOM. Further dissection of these four dimensions leads to 15 sub-dimensions and 217 variants. Combinations of the 217 variants enable the identification of 550 novel future research opportunities in the area of NWOM and NeWOM.     

A normative approach to motivating savings behavior: the moderating effects of attention to social comparison information

Research examining the influence of social norms on motivating savings behavior is scarce. The current study tested social norm effects in conjunction with benefit information and the moderating role of attention to social comparison information (ATSCI) when responding to public service advertisements (PSAs) promoting savings behavior. Results from two experiments, testing positive and negative social norm information, respectively, support the argument that lower ATSCI individuals exhibit greater intellectual autonomy and discernment of information, especially regarding norm information, while higher ATSCI individuals generally demonstrate greater social compliance tendencies. Implications for theory development and enhancing savings campaigns are discussed.     

Abandonment issues: A hazard analysis of high-performance work practices

This study examines usage of high-performance work practices (HPWPs) over time using a unique longitudinal survey of Canadian organizations. Human resource management (HRM) studies tell us HPWPs require long-term commitment but rarely measure it. Using event history analysis this study finds high rates of HPWP abandonment. The study also examines organizational supports for high-performance work system (HPWS). A Cox regression analysis finds rates of abandonment are reduced when HPWPs are accompanied by aligned business strategies and HR professional support. The results inform process research on HRM strategies and raise troubling questions for findings in studies that fail to measure duration. For managers, the findings highlight the importance of ensuring strategic alignment with and organizational support for HPWPs if they are to endure.