This article examines the risk and return profiles of stock indices composed of companies meeting environmental, social and governance screening criteria [such as the Dow Jones Sustainability Indices ] and conventional composite indices of eight Asian countries from 2002 to 2014. The results indicate that there are no significant differences in the returns or risk-adjusted returns between the ESG indices and the composite indices within countries. The results do reveal that the market volatility of the ESG indices is higher than (...) the market volatility of the conventional indices. Market betas of DJSI and ESG equity indices are significantly lower than betas of the composite equity indices. The overall results indicate that the performance of ESG equity indices of many Asian countries is similar to the performance of conventional indices, suggesting that investors can pursue socially responsible investing objectives without a material difference in portfolio performance from conventional investing. (shrink)

We found that pension funds may face a bottleneck as practical impediments to engaging in responsible investment with respect to the role played by defining and implementing responsible investment. Furthermore, pension funds seek additional coherence and practical guidelines in this field to enable them to take into account ethical considerations in their investment strategies and in implementing them. These findings indicate that the availability of information may affect the stance that key decision makers of pension funds adopt towards responsible investment.

A critical issue for the future growth and impact of socially responsible investment (SRI) is whether institutional investors are legally permitted to engage in it – in particular whether it is compatible with the fiduciary duties of trustees. An ambitious report from the United Nations Environment Programme’s Finance Initiative (UNEP FI), commonly referred to as the ‘Freshfields report’, has recently given rise to considerable optimism on this issue among proponents of SRI. The present article puts the arguments of the Freshfields (...) report into some further both empirical and critical perspective, however, and suggests that its findings do not call for very much optimism. The general argument is that while the understanding of fiduciary duty outlined by the Freshfields report seems to allow institutional investors to at least sometimes take some social or environmental considerations into account, the support it gives for SRI is notably contingent and, furthermore, it rules out exactly the kind of SRI which proponents of social responsibility and environmental sustainability should hold in highest regard – proactive cases and socially effective investment strategies. If SRI is to become an important force for corporate social responsibility through its adoption by institutional investors, then, it is suggested that legal reform is needed. (shrink)

Can SRI be a means to make investors both virtuous and prosperous? This paper argues that there can be significant tensions between these goals, and that SRI (and indeed all investment) should not allow the pursuit of maximizing investment returns to prevail over an ethical agenda of promoting social and economic justice and environmental protection. The discourse on SRI has changed dramatically in recent years to the point where its capacity to promote social emancipation, sustainable development and other ethical goals (...) is in jeopardy. Historically, SRI was a boutique sector of the market dominated by religious-based investors who sought to invest in accordance with the tenets of their faith. From the early 1970s, the aspirations of the SRI movement morphed significantly in the context of the divestment campaign against South Africa's apartheid regime. No longer were social investors satisfied with just avoiding profit from immoral activities; instead, they also sought to change the behavior of others. Business case SRI is a problematic SRI benchmark for several reasons: often there is a countervailing business case for financing irresponsible activities, given the failure of markets to capture all social and environmental externalities; secondly, even if investors care about such concerns, there may be no means of financially quantifying their significance for investment purposes; and, thirdly, even if such factors can be financially quantified, they may be deemed to be such long-term financial costs or benefits that they become discounted and ignored. The ethics case for SRI and ethical business practices more generally takes the view that both investors and the companies they fund have ethical responsibilities that trump the pursuit of profit maximization. Ethical investment should be grounded on this foundation. However, it may not be enough. To keep ethical investment ethical will likely require institutionalizing new norms and governance standards, in such domains as reforming fiduciary duties and the internal governance of financial organizations. SRI's own codes of conduct including the UNPRI have yet to demonstrate the robustness to move the financial community beyond business as usual. (shrink)

Religious organisations are major investors with sometimes substantial investment volumes. An important question for them is how to make investments in, and to earn returns from, companies and activities that are consistent with their religious beliefs or that even support these beliefs. Religious organisations have pioneered responsible investment. Yet little is known about their investment attitudes. This article addresses this gap by studying faith consistent investing. Based on a survey complemented by interviews, we investigate religious organisations’ attitudes towards responsible investment (...) including opinions, practices and the impediments for implementing faith consistent investing. Although our results cannot be generalised because of the non-random character of our sample, six main characteristics of faith consistent investing are drawn: investing is not perceived as being in contradiction with religious values, religious values are important drivers, there is a strong community around faith consistent investing, religious investors are pioneering impact investing, implementing faith consistent investing is not without difficulties, and practices vary across regions. The survey also reveals that faith consistent investing has many commonalities with secular responsible investors. (shrink)

Religious organisations are major investors with sometimes substantial investment volumes. An important question for them is how to make investments in, and to earn returns from, companies and activities that are consistent with their religious beliefs or that even support these beliefs. Religious organisations have pioneered responsible investment. Yet little is known about their investment attitudes. This article addresses this gap by studying faith consistent investing. Based on a survey complemented by interviews, we investigate religious organisations’ attitudes towards responsible investment (...) including opinions, practices and the impediments for implementing faith consistent investing. Although our results cannot be generalised because of the non-random character of our sample, six main characteristics of faith consistent investing are drawn: investing is not perceived as being in contradiction with religious values, religious values are important drivers, there is a strong community around faith consistent investing, religious investors are pioneering impact investing, implementing faith consistent investing is not without difficulties, and practices vary across regions. The survey also reveals that faith consistent investing has many commonalities with secular responsible investors. (shrink)

Sustainable investment (SI), which integrates social, environmental and ethical issues, has grown from a niche market of individual ethical investors to embrace institutional investors (e.g. pension funds) resulting in £764 billion in assets under management in the UK alone [Eurosif, 2008 : ‘European SRI Study 2008’ (Eurosif, Paris)]. Explaining this growth is complex, involving shifts in personal and collective values, reactions to corporate scandals, scientific and media pronouncements about climate change, Government initiatives, responses from financial markets and the influence of (...) SI innovators in The City of London. The article examines the influence of human agency through interviews with 14 SI champions who have variously been responsible for launching SI funds and changing investment processes and organisational structures in order to enhance SI. Interviewees were asked about their motivations and persuasive strategies, the obstacles they faced and how they overcame them as well as broader implications of SI for financial markets. The following key categories inform the results and the discussion: Values; Conservatism, Antipathy and Incredulity; Optimism and Sympathy from Insiders; The Social and Political Context; The Business Case; Organisational Constraints; Inappropriate forms of Remuneration; Short-termism; The Nature of Capitalism. Three discourses were also identified. The first is the necessity to make a business case for SI; the second is the benefits that SI can bring to the quest of overcoming short-termism; the third is a belief that for SI to have a significant influence, greater government intervention is required. (shrink)

Sustainable investment, which integrates social, environmental and ethical issues, has grown from a niche market of individual ethical investors to embrace institutional investors resulting in £764 billion in assets under management in the UK alone [Eurosif, 2008: ‘European SRI Study 2008’ ]. Explaining this growth is complex, involving shifts in personal and collective values, reactions to corporate scandals, scientific and media pronouncements about climate change, Government initiatives, responses from financial markets and the influence of SI innovators in The City of (...) London. The article examines the influence of human agency through interviews with 14 SI champions who have variously been responsible for launching SI funds and changing investment processes and organisational structures in order to enhance SI. Interviewees were asked about their motivations and persuasive strategies, the obstacles they faced and how they overcame them as well as broader implications of SI for financial markets. The following key categories inform the results and the discussion: Values; Conservatism, Antipathy and Incredulity; Optimism and Sympathy from Insiders; The Social and Political Context; The Business Case; Organisational Constraints; Inappropriate forms of Remuneration; Short-termism; The Nature of Capitalism. Three discourses were also identified. The first is the necessity to make a business case for SI; the second is the benefits that SI can bring to the quest of overcoming short-termism; the third is a belief that for SI to have a significant influence, greater government intervention is required. (shrink)

The study explores the challenges UK-based institutional investors face when trying to monitor investee companies and influence their social, environmental, and governance practices. Consistent with previous research, I find that misalignment of interests within the investment chain and dispersed ownership are factors which inhibit investor activism. However, other underexplored challenges include lack of investee company transparency and investor experience in activism, as well as low client demand for engagement and internal conflicts of interest. The results contribute to the literature on (...) institutional investor activism by using direct empirical evidence to systematically discuss the challenges to stewardship. Given the intensification of media and regulatory attention on shareholders in the post-global financial crisis era, coupled with investors’ growing awareness and practice of stewardship, the research opens new avenues for enquiry which go beyond the on-going debate about the monitoring versus short-termism roles of institutional investors. (shrink)

From a simple idea to unite asset owners in their quest for responsible investment at its launch in April 2006, the United Nations supported Principles for Responsible Investment have grown in just one decade into an initiative with more than 1500 fee-paying signatories. Jointly, the PRI’s signatories hold assets worth more than $80 trillion, making it one of the more prevalent not-for-profit organizations worldwide. Furthermore, the PRI’s ambitious mission to transform the financial system at large into a more sustainable one (...) makes it a worthwhile subject of inquiry from an institutional perspective. We undertake an empirical investigation of the adoption of the PRI by asset owners during five crucial years of the association’s emergence: 2007–2011. Following a tripartite view of institutional theory proposed by Scott, we explore if regulative, normative, and cultural–cognitive factors influence an asset owner’s decision to subscribe to the PRI. Applying both parametric and non-parametric survival analysis, we find that asset owners are indeed significantly affected by normative, cultural–cognitive, and regulative aspects. In particular, public service employee and labor union pension funds from social backgrounds more culturally aligned with values represented by the RI movement with historically more voluntary legislation on environmental, social, and governance issues are most likely to sign the PRI. In contrast, institutional environments with a higher number of pre-existing mandatory ESG regulation decrease the likelihood of signing the PRI. Our results indicate that normative and cultural–cognitive factors were crucial contributors to the PRI’s growth. With respect to the regulative environments, our results imply that some asset owners may use the PRI as a collective industry initiative to substitute for mandatory legislation. Conversely, a high level of historical mandatory legislation may constrain organizational resources that could otherwise be dedicated to voluntary initiatives such as PRI. Our findings are robust to relevant controls and econometric concerns. (shrink)

This introduction to the special issue on impact investing applies the attractive nuisance notion to impact investing. Social sector actors ‘trespassing’ on the playing field of conventional investment markets may not appreciate the risks. We apply the framework of essentially contested concepts to foster fruitful diverse research in this emerging research field. We advance six dimensions, which we propose allow to describe different sub-clusters of how the term is used in research and practice. For each dimension we identify risks and (...) opportunities stemming from the contested nature and highlight an ambitious research agenda for how future business ethics scholars can help address and foster impact investing. We conclude by illustrating how the papers in this special issue address these challenges. (shrink)

Despite the increase in the acceptance of responsible investing in general, the global community is still witnessing unprecedented levels of practices that can only be categorized as “unsustainable”. It appears, then, that either the inroads made by the RI community have not kept up with the increase in unsustainable practices, or, that the RI process itself has been ineffective at producing meaningful change. The current study aims to investigate the practices used by pension plan sponsors to determine how they may (...) enable, or interfere with, the adoption of implementation of RI. We adopt Framing Theory, specifically the idea that particular frames find alignment when they resonate with their targets, by either bridging, extending, amplifying or transforming a domain. We extend research to include understudied practices by performing an analysis of 60 public pension funds in Canada. We find evidence of disconnect between the financial frame which dominates practices for compliance and evaluation, and the social frame of RI as a source of change. If the aim of RI is to produce long-term change, then a consideration of whether it aligns with extant practices is critical. We discover a variety of frame alignment tactics already employed in practice. We also find that, even within the dominant financial frame, opportunities for frame extension, amplification and transformation do exist, and examine how these are more possible depending on how the asset management structure is designed. (shrink)

Investors concerned about the social and environmental impact of the companies they invest in are increasingly choosing to use voice over exit as a strategy. This article addresses the question of how and why the voice and exit options (Hirschman 1970) are used in social shareholder engagement (SSE) by religious organisations. Using an inductive case study approach, we examine seven engagements by three religious organisations considered to be at the forefront of SSE. We analyse the full engagement process rather than (...) focusing on particular tools or on outcomes. We map the key stages of the engagement processes and the influences on the decisions made at each stage to develop a model of the dynamics of voice and exit in SSE. This study finds that religious organisations divest for political rather than economic motives using exit as a form of voice. The silent exit option is not used by religious organisations in SSE, exit is not always the consequence of unsatisfactory voice outcomes, and voice can continue after exit. We discuss the implications of these dynamics and influences on decisions for further research in engagement. (shrink)

This article discusses moral issues raised by defined contribution retirement plans, specifically 401(k) plans in the United States. The primary aim is to defend the claim that the federal government ought to require 401(k) plans to include a range of socially responsible investment (SRI) options. The analysis begins with the minimal assumption that corporations engage in behavior that imposes morally impermissible harms on others with sufficient regularity to warrant attention. After motivating this assumption, I argue that individual investors typically share (...) in the responsibility for the harms imposed by corporations in which they invest, and that they therefore have a moral obligation to incorporate considerations of social responsibility into their investment decisions, when possible, to avoid being complicit in morally impermissible corporate behavior. I further argue that individuals are subject to substantial institutional and structural pressures that create a powerful incentive to invest in 401(k) plans, even though such plans typically lack any SRI options. To eliminate this pressure to commit indirect harm in the process of saving for retirement, I recommend that the federal government requires 401(k) plans to incorporate a range of SRI options, and I defend this proposal from several possible objections. (shrink)