This article presents a framework intended to provide pension funds with practical guidance for the successful implementation of a sustainable investing strategy. The framework is developed with respect to the UK and US pension funds (as these share certain common legal characteristics) and focuses on the changes that pension funds adopting such a strategy should make to their investment strategies and governance (particularly through the formulation and articulation of clear investment mission and strong investment beliefs). The article proceeds with a (...) review of socially responsible investment (SRI) and more recent responsible investment (RI) literature, in the context of growing public awareness (but not necessarily understanding) of the concept of sustainability ("Literature review of SRI field: SRI, RI and sustainable investing" section). It then examines the literature on pension fund governance, arguing the need for more detailed practical guidance for funds moving towards sustainable investing, especially for those implementing a sustainable investing strategy ("Anglo-American pension fund governance" section). It presents the framework for the practical implementation of sustainable investing in the "Sustainable investing framework" section. Finally, we review the relevant Anglo-American legal backdrop, outlining how pension funds adopting our framework should approach their fiduciary obligations, and then discussing potential regulatory enablers of sustainable investment ("Legal context: barriers to and enablers of sustainable investing" section). (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)

Business sustainability aims to combine market logic with social welfare logic. In literature, it is commonly assumed that sustainability and the social welfare logic associated with it are characterized by a long-term orientation. However, this assumption is problematic because this principle may not apply in certain contexts. This qualitative study challenges this assumption and focuses on the mechanisms by which time affects the adoption of sustainability practices in the context of socially responsible investing (SRI) practices in Swiss banks and insurance (...) companies. The article provides insights into the mechanisms associated with different time horizons and investigates their effects on the adoption of SRI in financial intermediaries. It also shows how the dimension of time shapes interactions between the two institutional logics underlying SRI in business organizations through specific mechanisms. (shrink)

Selecting, applying and reporting on investment screens for socially responsible investing (SRI) presents challenges for companies, investors and fund managers. This article seeks to clarify the nature of these challenges in developing an understanding of the foundations of ethical investment screens. At a conceptual level this work argues that there is a common element to the ethical foundations of SRI, even with very different apparent motivations and investment restrictions. Establishing this commonality assists in explaining the information asymmetry problem inherent in (...) SRI. A market-facilitated solution illustrates how these insights might foster the development of socially responsible investment. (shrink)

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 response to Morningstar’s release of carbon risk (CR) scores in May 2018, (environmentally) sustainable mutual funds in the U.S. showed a greater reduction in their portfolio CR relative to conventional funds. The observed causal impact of this third-party disclosure is consistent with the funds’ primary investment objectives. Differences in fund names, potentially driven by marketing considerations, appear irrelevant to the behavior of sustainable funds. Conventional funds that are signatories to the UN’s Principles for Responsible Investment (PRI) or those with (...) secondary sustainability mandates behave more like other conventional funds rather than sustainable funds. These funds appear relatively insensitive to disclosures as their sustainability considerations are superseded by other primary investment criteria. Fiduciary and legal bonding influences fund managers’ response to sustainability disclosures. Sustainable funds lower their CR score by reducing exposure to fossil fuels, not by increasing exposure to renewables. (shrink)

This study examined individual difference characteristics as predictors of business students' attitudes toward sustainable business practices. Three types of predictors were considered: personal values, individualism—collectivism, and leadership styles. Data were collected from 248 business students attending a mid-sized university in western United States using self-reported questionnaires. Few gender differences were present.Hierarchical regression analyses, controlling for personal demographic characteristics, indicated that business students scoring higher on Rokeach's social value scale, collectivism, and transformational leadership also reported more positive attitudes toward sustainable business (...) practices.Implications for research and practice are discussed. (shrink)

This study examined individual difference characteristics as predictors of business students’ attitudes toward sustainable business practices. Three types of predictors were considered: personal values, individualism–collectivism, and leadership styles. Data were collected from 248 business students attending a mid-sized university in western United States using self-reported questionnaires. Few gender differences were present. Hierarchical regression analyses, controlling for personal demographic characteristics, indicated that business students scoring higher on Rokeach’s social value scale, collectivism, and transformational leadership also reported more positive attitudes toward sustainable (...) business practices. Implications for research and practice are discussed. (shrink)

Since its inception in 2006, the United Nations-backed Principles for Responsible Investment have grown to over 1300 signatories representing over $45 trillion. This growth is not slowing down. In this paper, we argue that there is a set of attributes which make the PRI salient as a stakeholder and its claim to sign the six PRI important to institutional investors. We use Mitchell et al.’s theoretical framework of stakeholder salience, as extended by Gifford. We use as evidence confidential data from (...) the annual survey of signatories carried out by the PRI in a 5-year period between 2007 and 2011. The findings highlight pragmatic and organizational legitimacy, normative and utilitarian power, and management values as the attributes that contribute most to the salience of the PRI as a stakeholder. (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)

Banks face a dilemma in choosing between maximising profits and facilitating the sustainable use of resources within a carbon-constrained future. This study provides empirical evidence on this dilemma, investigating whether a bank loan announcement for a firm with high carbon risk conveys information to investors about the firm’s carbon risk exposure collected through a bank’s pre-loan screening and ongoing monitoring. We use a sample of 120 bank loan announcements for ASX-listed firms over the period 2009–2015. We measure high carbon risk (...) exposure based on whether firms meet the reporting threshold of the NGER scheme. We document positive and significant excess loan announcement returns for loan renewals for high carbon risk firms, but not for loan initiations. Further, we document a more significant loan announcement return for renewals with favourable term revisions. Finally, we find no evidence that the market differentiates between domestic and foreign lenders. Taken together, our results suggest that investors perceive that banks incorporate carbon risk considerations into their lending decisions. Our results highlight the value of banks as financial intermediaries given the information asymmetry surrounding firms’ carbon risk exposure, and more generally the need to extend modern banking theory to consider issues such as the impact of banks’ CSR reputation on lending decisions. (shrink)

Addressing ESG issues has become a point of interest for investors, shareholders, and governments as a risk management concern, while for firms it has become an emerging part of competitive strategy. In this study, a database from an independent ratings agency is used to examine, longitudinally, how Australian Securities Exchange (ASX) 300 firms are responding to ESG issues. Following institutional theory predictions, ASX300 firms are improving ESG performance over the 2002–2009 timeframe. Furthermore, over this timeframe, performance on the governance dimension (...) improved at a greater rate than environmental or social performance, as predicted. Lastly, high impact industries are predicted to demonstrate overall improved ESG performance relative to medium or low impact industries over the timeframe, but this hypothesis was not confirmed. Results are discussed along with implications and future research directions. (shrink)

The aim of this study was to reflect on the origins and meanings of names describing investment practices that integrate a consideration of environmental, social and corporate governance issues in the academic literature. A review of 190 academic papers spanning the period from 1975 to mid-2009 was conducted. This exploratory study evaluated the associations and disassociations of the primary name assigned to this genre of investment with variables grouped into five domains, namely Primary Ethical Position, Investment Strategy, Publication Date, Regions (...) Covered and Periodical Type. The study indicated that papers coded as expressing a deontological ethical position were more frequently associated with the name Ethical Investment , whereas those with an ambiguous ethical position were less frequently associated with Ethical Investment . Three investment strategies (positive screening, best-in-class and cause-based investing) were unusually associated with the primary name Responsible Investment . A strong preference for the name Ethical Investment was noted in the United Kingdom, and contrasted starkly with an apparent aversion for this name in the United States. The name Ethical Investment is significantly more frequently used in journals dealing with ethics, business ethics and philosophy than in finance, economic and investment journals. Finally, the study yielded some weak hints that the name Responsible Investment might perhaps be linked to an egoist ethical position. On the basis of this, and because these have already been substantively linked through the Principles for Responsible Investment in the popular discourse, we follow the heuristic tradition set by Sparkes (Business Ethics Eur Rev 10:194–201, 2001 ), and propose that Responsible Investment be defined as ‘Investment practices that integrate a consideration of ESG issues with the primary purpose of delivering higher-risk-adjusted financial returns’. (shrink)

There appears to be a growing disquiet amongst academics surrounding the ascendancy of 'responsible' investment that is egoist or self-interested in character — 'business case' responsible investment. This ascendancy has in no small measure been associated with the uptake of United Nations Principles for Responsible Investment (PRI) as a de facto standard for mainstream responsible investment. This article contributes to this disquiet. It does this by examining how egoist 'responsible' investors (as endorsed by the PRI) might have behaved had they (...) been around in the 1970s, 1980s and early 1990s during days of the anti-apartheid socially responsible investment (SRI) movement. Armed with near perfect (hindsight grade) enhanced analytics, it is clear that the signals that such egoist ' responsible' investors would have sent to company management in terms of the apartheid issue would have been highly muddled and therefore ineffective. The net conclusion is that there is nothing inherently or inevitably ' responsible' about egoist investment and that the aversion to behaving ethically amongst institutional investors must be challenged and not swept under a carpet of rhetoric. (shrink)

In his 2014 paper entitled “Reason, Rationality and Fiduciary Duty”, Lydenberg ventures into the field of the moral and political philosophy dealing with distributive justice in search of fresh perspectives on fiduciary duty. Simply by doing this, Lydenberg makes the very important contribution of drawing a little more attention to the potential that this huge field of study might have in relation to understanding socially responsible investment. There are however difficulties with Lydenberg’s paper. I describe three in particular that I (...) believe warrant critical attention. The first emerges out of Lydenberg’s treatment of the central concepts of reasonableness and rationality. The second lies in his apparent suggestion that at some earlier time fiduciary duty was somehow more generally other-considering than it is today. And finally, the third is associated with the place that impartiality occupies in Lydenberg’s storyline, and the implications of this in terms of his call for a reconciliation between reasonableness and rationality. This critical scrutiny clarifies theoretical and practical implications of the transition Lydenberg is suggesting. In doing this, it makes the realization that what Lydenberg is attempting is more than likely nothing short of resolving “The fundamental problem of ethics and politics” in the specific context of fiduciary action. (shrink)

This study examines local communities’ lived experiences and organizations’ care-giving processes regarding four oil and gas projects deployed in three countries. Analyzing the empirical data through the lens of ethics of care reveals that, together with mature justice, the inclination to care conceived at the focal organization creates an ethical culture encouraging caring activities by individuals at the local level. Through close communications with communities, project decision makers at the local level recognize the demanded care of local communities and develop (...) organizations’ caring capacity. The empirical analysis revealed that the care-giving process can also be influenced by the power dynamics of the network of stakeholders. This research emphasizes on the success of a bottom-up approach in caring for local communities, and sheds light on the capability of large organizations in giving care to their distal stakeholders by adopting this approach. Furthermore, it indicates that justice and care both have some useful characteristics and are complementary but, most importantly, are socially constructed and not mutually exclusive. (shrink)

Over time, according to popular and academic accounts, alternative trade initiatives [such as fair trade, organics, forest certification, and socially responsible investing ] almost invariably lose their oppositional stance and go mainstream. That is, they lose their alternative, usually peripheral, and often contrarian character. In this paper, I argue that this is not always the case and that the path to going mainstream is not always an unproblematic one. I observe that while scholars have documented various aspects of specific alternative (...) trade initiatives, little comparative work has been done to theorize their different trajectories. To advance the scholarship, I compare two alternative trade movements, fair trade and SRI, and develop three hypotheses—the relation motivations hypothesis, the material interests hypothesis, and the organization of credibility hypothesis—that explain why going mainstream has been so hotly contested in the fair trade movement but not the SRI movement. I articulate these hypotheses and evaluate their merits. (shrink)

In this introduction to the special issue of industry-specific corporate social responsibility, we develop our argument in three steps: Firstly, we elaborate on some theoretical perspectives for industry-specific CSR by referring to cultural business ethics, a theoretical approach which is located between purely business perspectives and purely normative perspectives on CSR. Secondly, we briefly introduce the papers of this special issue, which covers a wide range of theoretical approaches and empirical studies in the field of industry-specific CSR. Thirdly, we draw (...) attention to shortcomings of an industry-specific approach and sketch some theoretical—but also empirically applicable—perspectives for further research that stress cross-sectoral perspectives based on societal needs. (shrink)

The link between Corporate Social Responsibility (CSR) and financial performance has continued to generate mixed and inconclusive results. Most studies in this area seem to assume that corporate social and financial performance share the same underpinning logic. Drawing from a qualitative analysis of practitioners' accounts of the challenges of mainstreaming the market for responsible investments, as part of the broader CSR agenda, this article re-examines this taken-for-granted assumption in the extant literature, and reaches the conclusion that CSR, as a complex (...) private governance of externalities, does not easily lend itself to measurability and profitability. In other words, not everything about CSR is measurable and profitable as much as the financial markets would expect. Comparing what is rendered measurable and profitable, on one hand, and what is yet to fully lend itself to measurability and profitability, on the other, is identified as one of the fundamental flaws of this literature. As such, CSR and financial performance will continue to run on competing logics until their different markets are distinctively articulated and/or aligned. (shrink)

In contrast to the conventional fund management industry with a profit-oriented logic based on risk and return, ethical and faith-based funds should follow the religious principles of their investment-style philosophy. Islamic funds should obey the theological teachings of the primary sources of Islam, the Quran and Sunnah, as stakeholders expect these religious teachings to influence the investment decisions of fund managers. In practice, Islamic fund managers use Accounting and Auditing Organization for Islamic Financial Institutions ’s screening criteria, based on secondary (...) sources of Islam, which allow investments that are only partially halal to be included in their portfolios. This study finds that a more religious logic in screening practices, although impairing diversification, does not necessarily harm performance. Thus, Islamic investment funds, and the wider ethical fund management industry, should, and could, adopt stricter screening criteria that match their investment mandates and bring more ethical business practices to the industry. (shrink)