This study elucidates the link and effect of ethical reinforcement in the post‐financial crisis era by taking two congruent directions to demonstrate that ethical reinforcement can be accomplished by either a continuous ethical training or a meticulous code of business ethics—which members of the mutual fund industry claim they adhere to—as both have a positive effect on the funds’ performance, including sizeable gains to investors. Furthermore, evidence divulges that ethical reinforcement moderates the performance of ethical or socially responsible investments (SRI) (...) funds more than nonethical investments, suggesting that a perspective of ethical or SRI classification of a fund alone is not sufficient, but it is necessary to have the institutional ethical environment and/or managers’ continuous ethical training. This result supports the notion of financial market discipline and reveals some factors behind SRI or ethical funds returns, notably during the period following the recent financial crisis. (shrink)

With a meta-analysis of 85 studies and 190 experiments, the authors test the relationship between socially responsible investing and financial performance to determine whether including corporate social responsibility and ethical concerns in portfolio management is more profitable than conventional investment policies. The study also analyses the influence of researcher methodologies with respect to several dimensions of SRI on the effects identified. The results indicate that the consideration of corporate social responsibility in stock market portfolios is neither a weakness nor a (...) strength compared with conventional investments; the heterogeneous results in prior studies largely reflect the SRI dimensions under study. (shrink)

Empirical studies, which analyze the performance of socially responsible investment (SRI) funds relative to conventional funds, find contradictory results. The aim of this paper is to investigate, with the help of a meta-analysis, how selected primary study characteristics influence the probability of a significant under- or outperformance of SRI funds compared with conventional funds. 25 studies with more than 500 observations are included in the meta-analysis. The results of this paper suggest that the consideration of the survivorship bias in a (...) study increases (decreases) the probability of a significant outperformance (underperformance) of SRI funds relative to conventional funds. The focus on United States (US) SRI funds increases (decreases) the probability of a significant outperformance (underperformance) too. The time period influences the probability of a significant under- and outperformance of SRI funds as well, but based on the results of this paper, it is not possible to draw general conclusions on this variable. (shrink)

In Japan, income, authority, and prestige are unequally distributed between men and women, even if they share the same occupational level. These inequalities are perceived as an ethical issue because they go against the principle of equal treatment at work. Nowadays, Japanese companies are under growing political and regulatory pressure to increase the hiring, promotion, and empowerment of female employees. In this context, the first equity index that tracks the financial performance of the best Japanese companies in terms of gender (...) diversity performance—the MSCI Japan Empowering Women Index —was launched in 2010. It aims to satisfy the growing demand of investors who want to reduce gender discrimination in Japanese workplaces. This paper compares the financial performance of the WIN stock index to the conventional parent index over the period 2010–2018, offering a unique setting to assess the effects of gender diversity screens on portfolio risk-adjusted performance. Our results are robust to a battery of risk-adjusted performance indicators and clearly indicate that investing in the WIN equity index does not come at a cost compared to investing in its conventional peer. This evidence is expected to reinforce confidence of investors who have an appetite for justice in increasing their investment in financial products that support the participation and the advancement of women in the Japanese workforce. (shrink)

Business Ethics: A European Review, Volume 30, Issue 2, Page 216-230, April 2021.

Socially responsible mutual funds match financial and environmental, social, and governance criteria in their portfolio management strategies. Several studies have examined the behavior of these funds in terms of return–risk, obtaining very different results. The present study discusses previous results and shows how these funds often outperform their conventional counterparts. Rather than the SR character of a mutual fund, a relevant explanation for this behavior is the cultural environment in which the fund operates. Thus, the ethical framework or corporate social (...) responsibility used by the fund and its management must be assessed by considering the cultural context of the fund. This notion is the main contribution of this paper. (shrink)

This paper presents a comprehensive analysis of socially responsible funds in Sweden by assessing fund managers' abilities and performances across different market states. These issues are analyzed at the aggregate and individual fund levels. The paper also presents several new statistical tests that allow more precise inferences about differences in performance and the variability in fund returns arising from different benchmarks. In general, SR and conventional funds perform similarly to the market. At the aggregate level, SR funds investing in Sweden (...) and Europe perform similarly to conventional funds, while those investing globally tend to underperform. This underperformance seems to be linked with poor selectivity abilities of global SR fund managers. For individual funds, the performance of both types of funds is more similar. Most funds perform similarly in crisis periods compared to non-crisis periods. Overall, our results are consistent with a mature market for SR investing and support the view that the similar performance of SR and conventional funds is associated with the mainstreaming of SR investment in Sweden. These findings encourage SR investing both by socially conscious investors, who wish to align their social values with their investment decisions, as well as by conventional investors, who will not be penalized by investing in these funds. We also call attention to the difficulties investors face when trying to identify funds with high social standards, considering that there is scarce information on the extent to which each fund holds stocks that comply with ethical and social criteria. (shrink)

It is widely claimed that climate change has increased the magnitude and the frequency of natural phenomena such as storms, droughts, and floods with the concomitant costs in terms of damages and victims. This paper using weekly data from global stock market indices in a Fama–French model, examines how and to what extent market agents and investors react to such events. As a yardstick for comparison purposes, the possible market impact of industrial accidents is also incorporated and examined in the (...) empirical investigation. The study uses in a comparative approach the STOXX Global ESG Environmental Leaders index and the STOXX Global index diversified across 1800 top companies. Results reported herein seem to indicate that natural and anthropogenic adversity have no immediate impact on the stock indices, while wildfires have an immediate reduction impact on market risk in the case of the ESG Environmental Leaders index. Moreover, wildfires and industrial accidents appear to cause a significant reduction of systematic risk over the next week following the incident. However, the magnitude of the effect is higher in the case of the ESG Environmental Leaders stock index. Finally, the effect on systematic risk by industrial accidents is temporarily without any lasting imprint. (shrink)

We provide a comprehensive analysis of differences between socially responsible investment and conventional funds in terms of manager characteristics, performance and fund styles. We use holdings-based analysis to evaluate fund performance and style, which allows us to perform a more in-depth analysis than the extant literature. We find that SRI managers have longer tenure and are more likely to be a female. However, these differences do not result in any significant difference in the performance of SRI and conventional funds. Further, (...) it is possible to find an SRI fund of any style, although these funds are under-represented in value styles. (shrink)

This study explores the underlying drivers of US public pension funds’ tendency to tilt their portfolios towards companies with stronger corporate social responsibility. Studying the equity holdings of large, internally managed US state pension funds, we find evidence that the political leaning of their beneficiaries and political pressures by state politicians affect funds’ investment decisions. State pension funds from states with Democratic-leaning beneficiaries tilt their portfolios more strongly towards companies that perform well on CSR issues, and this tendency is intensified (...) when the state government is dominated by Democratic state politicians. Moreover, we find that funds which tilt their portfolios towards companies with superior CSR scores generate a slightly higher return compared with their counterparts. Overall, our findings indicate that funds align their investment choices with the financial and non-financial interests of their beneficiaries when deciding whether to incorporate CSR into their equity allocations. (shrink)

Increased concern for the environment has increased the number of investment opportunities in mutual funds specialized in promoting responsible environmental attitudes. This article examines the performance and risk sensitivities of US green mutual funds vis-à-vis their conventional peers. We also analyze and compare this performance relative to other socially responsible investing (SRI) mutual funds. In order to implement this analysis, we apply a CAPM-based methodology and find that in the 1987–2009 period, environ- mental funds had lower performance than conventional funds (...) with similar characteristics. However, if we focus on a more recent period (2001–2009), green funds achieved adjusted returns not significantly different from the rest of SRI and conventional mutual funds. (shrink)

This study investigates performance of portfolios composed of British socially responsible investments (SRI) stocks. Using the ‘Global-100 Most Sustainable Corporations in the World’ list (known also as ‘Global-100’) to select the SRI companies, we found that, in the period 2000–2010, the returns of the SRI portfolios were on average higher compared with the corresponding returns of the market indexes. The annual average difference in returns of the SRI portfolios (with dividends) was 5.26 % and 5.69 % relative to the FTSE100 (...) and FTSE4GOOD indexes (the total return versions), respectively, but the differences in returns in the whole period, in individual years and in other sub-periods were in most cases not statistically significant. Positive performance of SRI stocks in the whole sample is, however, evidenced by risk-adjusted measures such as the modified Sharpe ratio (MSR) and certainty equivalent (CEQ) returns, as well as by incorporating various levels of transaction costs. Furthermore, a simple trading strategy relying on selection of SRI stocks from the Global-100 list would beat the market indexes in the whole period 2000–2010, even after inclusion of various levels of transaction costs. We also estimated the Fama–French and Carhart multi-factor models and found that the returns of the SRI portfolios cannot be consistently explained by conventional factors other than the market factor. (shrink)

The aim of this paper is to calculate the market valuation of non-financial characteristics, namely, the social responsibility criteria included in the Spanish Socially Responsible Investment Funds. The hedonic price method is applied for this purpose. This method relates the price of Socially Responsible Investment Funds with both financial and social responsibility characteristics. Because of the large number of social responsibility characteristics included in these funds, prior to application of the hedonic price method, the principal components factor analysis technique is (...) used. The data are taken from the prospectus for each fund and from the data provided by the National Securities Market Commission. Results indicate that the Spanish market is sensitive to the social responsibility practices of companies. In particular, the market value practices related to environmental sustainability, the enforcement of labour rights, sustainable production and consumption and non-abusive market practices. (shrink)

We study behind-the-scenes investor activism promoting environmental, social, and governance improvements by means of a proprietary dataset of a large international, socially responsible activist fund. We examine the activist’s target selection, forms of engagement, impact on ESG performance, drivers of success, and effects on the targets’ operations and value creation. Target firms are typically large and visible, perform well, and have high liquidity and low ESG performance. Engagement induces ESG rating adjustments: firms with poor ex ante ESG ratings experience a (...) ratings increase after complying with the activist’s demands, whereas firms with high ex ante ESG ratings experience a ratings decrease following the revelation of their ESG problems. Activism that is focused on environmental and social issues is more likely to succeed if targets are ESG-sensitive. Successful engagements boost targets’ sales. Risk-adjusted excess stock returns of successful engagements outperform those of unsuccessful engagements by 2.7%. Results are especially strong for firms with low ex ante ESG scores. Specifically, targeted firms in the lowest ex ante ESG quartile outperform matched peers by 7.5% in the year after the end of the engagement. Our results thus suggest that the activism regarding corporate social responsibility generally improves ESG practices and corporate sales and is profitable to the activist. Taken together, we provide direct evidence that ethical investing and strong financial performance, both from the activist’s and the targeted firm’s perspective, can go hand-in-hand together. (shrink)

The aim of this study is to analyze investor behavior towards socially responsible mutual funds. The analysis is based on an experimental study where a sample of individuals takes investment decisions under different parameters of information about the investment alternatives and expected returns. In the experiment, each participant decides how to distribute an investment budget between two funds, returns on which are uncertain and change over time. Two treatments are conducted, each providing a different degree of information on the socially (...) responsible (SR) character of one of the two investment alternatives. The results obtained suggest that although individuals’ criteria for investment are essentially guided by returns and diversification, participants invest significantly more in a fund when they are explicitly informed about its SR nature. In particular, participants who declare being concerned about SR actually invest significantly more in the SR alternative. Furthermore, the level of SR faithfulness among a small group of investors is such that they invest the main share of their budget in the SR fund, even when the return differential is highly unfavorable. Providing clear information about the SR characteristics of an investment is crucial to help investors express their preferences. (shrink)

Business Ethics: A European Review, EarlyView.