Environmental, social, and governance (ESG) investing is synonymous with sustainable investment for socially responsible investors. Unfortunately, the diversity of ESG investing remains unattended amidst the growth in ESG literature, as the academic literature focuses dominantly on measuring performance. An understanding of a wide range of subjects entailing ESG is required before future research on ESG investing is performed. To overcome the challenge, this systematic literature review uses bibliometric mapping to reveal four significant research themes within the ESG investing literature: investor (...) behavior and motivations for ESG investing; cost and risk mitigation in ESG investing; portfolio screening and ESG investing; and ESG performance. The review critically examines each theme and broadens the research agenda for future studies. In addition to the significant themes, this paper also discusses theoretical and recent research trends in the ESG investing literature. The review identifies clashes and crossovers between these themes to appropriately interpret one theme using another and emphasizes the heterogeneity in ESG investing. Lastly, discussion over concerns and criticisms of ESG investing highlights greenwashing as a major cause of concern for investors. (shrink)

We conduct the first comparative analysis of the financial performance of European green, black and conventional mutual funds. Based on a unique dataset of 175 green, 259 black and 976 conventional mutual funds, the investigation contrasts the financial performance of the three dissimilar investment orientations over the 1991–2014 period. Over the full sample period, green mutual funds significantly underperform relative to conventional funds, while no significant risk-adjusted performance differences between green and black mutual funds could be established during the same (...) period. Environmentally friendly investment vehicles display a significant exposure to small cap and growth stocks, while black funds are more exposed to value stocks. Remarkably, the green funds’ risk-adjusted return profile progressively improves over time until no difference in the performance of the green and the conventional classes could be discerned. Further evidence suggests that the green funds are beginning to significantly outperform their black peers, especially over the 2012–2014 investment window. (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)

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)

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 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)

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.

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)

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)

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

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)

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)

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)

Socially responsible investment has grown enormously and has expanded globally in recent years. It allows SRI investors to reduce their portfolio risk assumptions through international diversification. In this context, the aim of this paper is twofold to examine price and volatility linkages among the most representative SRI indexes for North America, Europe, and Asia-Pacific employing a multivariate approach and to provide the out-of-sample performance of an optimal portfolio constructed on the basis of time-varying return and volatility forecasts from this specification (...) approach. Our overall results show that using this technique, it is possible to reduce risk and out-perform the naïve rule, which is usually employed in this type of investment. These findings are relevant not only for academics but also for practitioners, especially for professional managers of SRI portfolios. (shrink)

We investigate the performance and risk of Socially Responsible Investment (SRI) equity funds in the Australian market and find no significant difference between the returns of SRI and conventional funds. In an extension to prior literature, we examine the impact of the number of positive, negative and total screens funds impose on performance and risk. We find little evidence of positive or negative screening impacting total return, but find weak evidence that funds with more screens overall provide better risk-adjusted performance. (...) Positive screening significantly reduces funds’ risk. However, negative screening significantly increases risk and reduces funds’ abilities to form diversified portfolios. (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)