As moral decision making in financial markets incorporates moral considerations into investment decisions, some rational decision theorists argue that moral considerations would introduce inefficiency to investment decisions. However, market demand for socially responsible investment is increasing, suggesting that investment decisions are influenced by both financial and moral considerations. Several models can be applied to explain moral behavior. We test the suitability of (a) multiple attribute utility theory (MAUT), (b) theory of planned behavior, and (c) issue-contingent model of ethical decision making (...) in organizations. In an experimental setting, 141 participants traded company shares in a computerized asset market. Over 12 periods, companies varied in morality (i.e., treatment of employees) and in profitability (i.e., expected dividends per share). Participants’ bids and asks for shares were recorded. Results indicate that moral considerations influence investment decisions, controlling for profit. Differences between the three models are discussed. (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)

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)

This exploratory study examines how managers and professionals regard the ethical and social responsibility reputations of 60 well-known Australian and International companies, and how this in turn influences their attitudes and behaviour towards these organisations. More than 350 MBA, other postgraduate business students, and participants in Australian Institute of Management (Western Australia) management education programmes were surveyed to evaluate how ethical and socially responsible they believed the 60 organisations to be. The survey sought to determine what these participants considered ‘ethical’ (...) and ‘socially responsible’ behaviour in organisations to be. The survey also examined how the participants’ beliefs influenced their attitudes and intended behaviours towards these organisations. The results of this survey indicate that many managers and professionals have clear views about the ethical and social responsibility reputations of companies. This affects their attitudes towards these organisations which in turn has an impact on their intended behaviour towards them. These findings support the view in other research studies that well-educated managers and professionals are, to some extent, taking into account the ethical and social responsibility reputations of companies when deciding whether to work for them, use their services or buy shares in their companies. (shrink)

The increasing popularity of socially responsible investment among individual investors throughout Europe reveals the need for a framework that allows the comparison of socially responsible retail markets in different European countries. This article proposes such a framework, containing 16 different characteristics of socially responsible retail markets describing the size, institutionalization and nature of this market and correcting for differences in the size of countries and financial markets. When this framework was applied to the Dutch and Belgian socially responsible retail markets, (...) differences were found with respect to the nature of both markets. Similarities were found with respect to the size and the degree of institutionalization of the socially responsible retail markets. (shrink)