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.

This paper applies insights from behavioral economics and nudge theory to foster sustainable and responsible investment. SRI provides an opportunity to express and promote ethical values via choice of financial instruments. While policy-makers have tried to encourage greater participation in SRI, the majority of retail investors retain a conventional approach to investment. I develop a conceptual framework to improve the effectiveness of SRI policy-making. The first part of the framework comprises a transmission mechanism which emphasizes the role of SRI as (...) a driver for sustainable development. The second part is a model of the individual decision for or against SRI. The framework suggests that low SRI demand is a case of behavioral market failure, and that nudging is a suitable tool for dismantling behavioral barriers to SRI. A specific example of smart choice architecture is used to illustrate the framework’s potential in the design of an SRI nudge. Assuming the nudge stands up to the rigors of empirical testing, it may well provide a feasible alternative for policy-makers. (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)

Existing research suggests people with stronger moral character traits are more inclined to ethical investing. We take a moral foundations framing approach that synthesizes framing theory and moral foundations theory to investigate whether a moral state of mind created by moral foundations frames can also increase retail investors’ ethical investment intention. We also hypothesize how this moral foundations framing effect is moderated by the perceived return performance of the ethical fund. We test our hypotheses through two online experiments with retail (...) investors in the United States. Study 1 demonstrates that the moral foundations framing effect varies by moral foundation. Focusing on the Fairness foundation, Study 2 shows that the framing effect is stronger under the win-win dual objective condition, relative to a conflict of interest condition. This stronger effect indicates that the moral foundations framing effect appears to be more effective when the investor perceives that ethical investments are financially lucrative. Our study provides preliminary evidence for the potential of the moral foundations framing approach and contributes to scholarship in both business ethics and ethical investing. (shrink)

Responsible investment is increasingly prevalent, and both financial and moral concerns can drive such investment. In this article, we investigate how responsible investors of different wealth weigh financial and moral arguments. Prior research on different factors that may codetermine responsible investment behavior yield competing predictions about the influence of personal wealth on investment. We conduct a large-scale natural field experiment on responsible investment, wherein we treat investors with financial, moral, and no arguments. We find that there is a statistically and (...) economically significant difference in responsiveness to financial and moral arguments between investors of different wealth. Specifically, financial arguments are more effective than are moral arguments for high wealth investors but not for low wealth investors, and the effect is particularly high for the wealthiest investors. The findings hold for several different measures of wealth. Our findings contribute to the understanding of the moderating effect of wealth on responsible investment choice. Furthermore, these insights may enable more fine-tuned strategies to stimulate responsible investment among different individual investor segments. (shrink)

Markets, corporations, shareholding, management, law, and ethics are all human constructs. A human element seems essential to their existence. Yet, the predominant conception of shareholders as used in academia as well as the business world is thin, generic, and inanimate. This article argues that a thick conception of shareholders as human beings is needed to legitimize and improve managerial decision making under value pluralism, accurately reflect empirical reality of capital markets, and meet moral demands to respect the dignity of the (...) human person. Drawing on the philosophical idea of thick evaluative concepts, the article explores how this idea can be applied to shareholders and begins to examine some of the implications of considering shareholders’ humanity for the responsibilities of and relationships between managers and shareholders. (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)

Factorial surveys integrate elements of survey research and classical experiments. Using a large number of respondents in a controlled setting, FSs approximate complex and realistic judgment situations through so-called vignettes—that is, carefully designed descriptions of hypothetical people, social situations, or scenarios. Despite being rooted, and predominantly applied, in sociology, FSs are particularly promising for business and society scholars. Given the multiplicity, inherent complexity, and sometimes fuzziness of B&S research objects, conventional research methods inevitably reach their limits. This article, therefore, systematically (...) presents methodological and thematic opportunities for FS studies in B&S research. It is argued that FSs are well suited to dealing with the complex interplay of societal-, organizational-, and individual-level factors in B&S research and to studying the principles underlying human perceptions, attitudes, values, social norms, and behavior. The application of the FS method is illustrated based on a showcase example in the realm of socially responsible investments. As the literature on the conceptualization of FSs is limited, methodological challenges are addressed to guide B&S researchers past the common methodological pitfalls. (shrink)

The debate around ethical consumption is often characterised by discussion of its numerous failures arising from complexity in perceived trade-offs. In response, this paper advances a pragmatist understanding of the role and nature of trade-offs in ethical consumption. In doing so, it draws on the central roles of values and value in consumption and pragmatist philosophical thought, and proposes a critique of the ethical consumer as rational maximiser and the cognitive and utilitarian discourse of individual trade-offs to understand how sustainable (...) consumption practices are established and maintained. An in-depth qualitative study is conducted employing phenomenological interviews and hermeneutic analysis to explore the consumption stories of a group of ethically minded consumers. The research uncovers the location of value within a fluid, yet habitual, plurality of patterns, preferences, morals, identities and relationships. Its contribution is to propose that consumer perception of value in moral judgements is represented by an overall form of aggregate personal advantage, which lacks conscious reflection and delivers a phenomenological form of value rooted in habits, reflecting a pragmatist representation of value unified as a ‘consummatory experience’. (shrink)

Recently, there has been much talk of impact investing. Around the world, specialized intermediaries have appeared, mainstream financial players and governments have become involved, renowned universities have included impact investing courses in their curriculum, and a myriad of practitioner contributions have been published. Despite all this activity, conceptual clarity remains an issue: The absence of a uniform definition, the interchangeable use of alternative terms and unclear boundaries to related concepts such as socially responsible investment are being criticized. This article aims (...) to contribute to a better understanding of impact investing, which could help foster this specific investment style and guide further academic research. To do so, it investigates a large number of academic and practitioner works, highlighting areas of similarity and inconsistency on three levels: definitional, terminological, and strategic. Our research shows that, on a general level, heterogeneity—especially definitional and strategic—is less pronounced than expected. Yet, our research also reveals critical issues that need to be clarified to advance the field and increase its credibility. First and foremost, this includes the characteristics required of impact investees, notably whether they need to be organizations that prioritize their non-financial mission over the business side. Our results indicate that there may be different schools of thoughts concerning this matter. (shrink)

We introduce nudges in order to incite investors to choose Socially Responsible Investment funds instead of traditional funds. We have set up two online experiments with a total of 713 US retail investors, using three types of nudges to elicit their effects on investors’ SRI investments level: making SRI the default investment, introducing a SRI explanation message, and priming ethical values by displaying shocking images. Making SRI the default option is the most efficient nudge to influence investors towards SRI. Its (...) effect is twofold. First, around 50% of investors do not opt-out of the default allocation. Second, even investors who opt-out of the default allocation invest more in SRI than those in the control group, an effect that appears driven by anchoring. Although investors subjected to both priming and message content marginally increase their SRI investment, priming or message content in isolation appears to have a non-significant influence. For choice architects who want to steer retail investors towards SRI funds, making them the default option appears to be the most powerful nudge. (shrink)

In this study, we analyze the financial performance and the managerial abilities of religious mutual fund managers, implementing a comparative analysis with conventional mutual funds. We use a broad sample, free of survivorship bias, of religious equity mutual funds from the US market, for the period from January 1994 to September 2010. We build a matched-pair conventional sample in order to compare the results obtained for both kinds of mutual fund managers. We analyze stock-picking and market timing abilities, topics widely (...) neglected for the specific case of religious mutual fund managers. We also study style timing abilities. As far as we are aware, this aspect has not been studied previously for religious mutual fund managers. Our results indicate that religious mutual fund managers underperform both the market and their conventional counterparts. This result is driven by negative stock-picking ability which could be generated by excluding “Sin” stocks from their portfolios. Moreover, they are not able to time the market or any of the following styles: size, book-to-market, and momentum. (shrink)

Most studies on the choices, motivations and behavior of investors consist of segmentations focused on socio-demographic characteristics such as age, income, education level, etc. Such approaches seem to simplify, even mutilate, reality by aggregating data about observable variables and considering investors as homogeneous groups. These perspectives are inspired by a scientific approach that consists of separating in order to better understand the observed phenomena. By considering individual as a “homo economicus”, that is to say, a rational and autonomous individual who (...) makes decisions motivated by material gains, these studies fail to recognize all the complexity that shapes human behavior. This paper argues that to understand the behavior and choices of investors in regards to socially responsible investing, we must consider social investors as complex individuals. In addition, we should take into account influence that the institution may exercise throughout the role of advisors and SRI promotion strategies. Our research builds on a multidimensional approach that explores to what extent demographic, environmental, social and governance issues, the trade-offs between financial return and social values, the attitudes and the role of the institution influence the decisions of individual social investors. Moreover, it adopts a more open approach by exploring the characteristics and behaviors of individual social investors in relation to those of conventional investors. Our research provides evidence from the Desjardins Fund. Qualitative and quantitative data gathered by Desjardins from online surveys are subjected to bivariate and multivariate analyses and are complimented by ten semi-structured interviews with managers, analysts, and advisors who provided further insight into SRI investment behavior and choice. The results show that while demographic characteristics still remain important in understanding the behavior and attitudes of social investors, it is their social values, ESG issues, financial return considerations and the role played by the institution in mediating investment decisions that are significantly associated with SRI portfolios. Our research highlights the complexity surrounding the phenomenon of SRI and has several implications both in terms of theory and practice. (shrink)

In this study, we explore how investors reconcile information on firms’ social responsibility with analysts’ assessments of future firm risk in the pricing of long-term bonds. We ask whether investors pay attention to small strides toward and/or small slips away from socially responsible behavior, arguing that analysts’ corporate bias toward gains and against losses influences investor reactions to corporate social responsibility. We hypothesize that analysts notice and reward improvements in social responsibility, yet excuse lapses. We find support for this hypothesis, (...) using a unique dataset of long-term bonds that combines lagged measures of firm-level financial and social performance with bond-specific data pertaining to risk of default and pricing. The empirically robust asymmetry in investor responses to small but often cumulative increases versus decreases in corporate social responsibility reveals an under-examined root cause of longer-term, larger-scale distortions in financial market returns regarding corporate social performance. Our findings elaborate earlier behavioral research on how corporate bias influences analysts’ short-term assessments of economic risk, by theorizing why this corporate bias may influence long-term assessments of social risk. Our work also motivates more critical scrutiny of the role analysts play in revising the future risk of today’s social action versus inaction. (shrink)

This paper presents a novel framework for selecting socially responsible investment (SRI) portfolios. The Hedonic Price Method (HPM) is applied to obtain an evaluation of SRI criteria that is integrated into a multi-objective mathematical programming model. The HPM breaks away from the traditional view that goods are the direct object of utility; on the contrary, it assumes that utility is derived from the properties or characteristics of the goods themselves. As far as the investment decision is concerned, we assume that (...) socially responsible investmentmutual funds (SRI funds) constitute heterogeneous goods. Our approach allows us to obtain a portfolio, the financial performance of which is similar to that which the investor would have reached if he or she had not taken into account social, ethical, and environmental considerations when making his or her investment decisions. This is achieved by designing a two-stage multi-objective mathematical programming procedure. In the first stage, we achieve the maximum level of financial satisfaction that the investor can receive. In the second stage, the portfolio with the best financial–social behavior is built. For the purpose of this second stage, the first stage portfolio is used as a benchmark for the financial performance of a socially responsible portfolio. To apply this methodology, we use portfolios composed of socially responsible and conventional mutual funds domiciled in Spain. (shrink)

The paper uses questionnaire responses provided by a sample of ethical investors to investigate willingness to sacrifice ethical considerations for financial reward. The paper examines the amount of financial reward necessary to cause an ethical investor to accept a switch from good ethical performance to poor ethical performance. Conjoint analysis is used to allow quantification of the utilities derived from different combinations of ethical and financial performance. Ethical investors are shown to vary in their willingness to sacrifice ethical for financial (...) performance, and hence to display more heterogeneity than the all-encompassing ‘ethical’ label implies. Because of the existence of sub-groups of ethical investors with different attitudes towards financial reward, an attempt has been made to associate observable investors’ characteristics with their level of willingness to trade-off morality for cash. One sub-group of investors in particular appears highly resistant to the idea of accepting higher financial return as compensation for poor ethical performance. This unwillingness casts doubt on Jensen and Meckling’s widely reported claim that trade-off behaviour is ubiquitous in all areas of life. (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)