Whereas extant literature has examined the overall effect of corporate social responsibility (CSR) on innovation, it is argued that CSR is a multidimensional concept encompassing both progressive activities concerning a firm’s engagement in the social domain, as well as rational aspects pertaining to corporate governance practices and the protection of shareholder rights. This study integrates organizational hypocrisy with the knowledge-based view literatures to examine how different forms of CSR engagement affect the rate of new product introductions (NPI). Results suggest that (...) the mechanisms by which progressive and rational CSR are associated to increases in the rate of NPI differ. Specifically, while progressive CSR positively affects the rate of NPI and such effect is deemed stronger for firms that are more vertically integrated, the effect of rational CSR on the rate of NPI is conditional on a firm’s level of absorptive capacity. (shrink)

Shareholders with standard monetary preferences will give a manager incentives to increase firm profits, which can be achieved with equity grants. When shareholders are socially responsible, in the sense that they also value corporate social performance, it is not clear which incentives the manager should receive. Yet, in a standard principal–agent model, we show that the optimal contract is surprisingly simple: it consists in giving equity holdings to the manager. This is notably because the stock price will incorporate expected profits (...) as well as the social performance of the firm, to the extent that it is valued by shareholders. Consequently, equity holdings give the manager incentives to jointly maximize the profits and the social performance of the firm according to shareholders’ preferences. To facilitate alignment of interests, more socially responsible firms will optimally hire more socially responsible managers. We conclude that neither the shareholder primacy model nor equity-based managerial compensation is necessarily inconsistent with the attainment of social objectives. (shrink)

In the past few years, investors from different European countries have become increasingly interested in the new opportunities that socially responsible investing can offer. Empirical research into this subject has often assumed as ‘given’ the meaning attributed to the terms ‘ethical’ or ‘socially responsible’, thus concentrating more on other elements. This paper, through the analysis of the characteristics of ethical funds traded in Italy, investigates the possible contents that the terms ‘ethical’ and/or ‘socially responsible’ can assume in practice, with particular (...) attention to the underlying values and to how these values are integrated into the selection process. This analysis brings to light the impressive variety of ethical funds traded in Italy. In particular, it reveals the ‘Italian model’, whose distinguishing characteristics seem to be the following: recentness of issue, options for charitable donations, almost exclusive use of screening strategies, use of ‘best in class’ and ‘minimum tolerance quota’ indications, preference for ethical indices, application of commissions no higher than the national average, presence of ethical committees and the utilization of consulting or rating agencies. (shrink)

This article examines the risk and return profiles of stock indices composed of companies meeting environmental, social and governance screening criteria [such as the Dow Jones Sustainability Indices ] and conventional composite indices of eight Asian countries from 2002 to 2014. The results indicate that there are no significant differences in the returns or risk-adjusted returns between the ESG indices and the composite indices within countries. The results do reveal that the market volatility of the ESG indices is higher than (...) the market volatility of the conventional indices. Market betas of DJSI and ESG equity indices are significantly lower than betas of the composite equity indices. The overall results indicate that the performance of ESG equity indices of many Asian countries is similar to the performance of conventional indices, suggesting that investors can pursue socially responsible investing objectives without a material difference in portfolio performance from conventional investing. (shrink)

Socially responsible investment in France is based on a “best in class” approach as opposed to the “exclusion” approaches used in other countries such as the United States or United Kingdom, where the rejection of sin stocks has been dominant historically. The objective of this research note is to examine whether the French SRI market, by focusing more on financial rather than on ethical considerations, compared with other countries such as the United States, the United Kingdom, or even Sweden, may (...) lead to a form of “mainstreaming” of SRI processes. The authors explore several convergent mechanisms. First, the authors analyze the importance of the mainstreaming issue in the history of SRI as well as in the contemporaneous debate in the academic literature on the links between financial and extrafinancial performance. Second, the authors review the role played by ethical finance laws adopted in France in the early 2000s in the development of the SRI market. Finally, the authors discuss the results of a survey of French SRI analysts working both for large institutional investors and asset managers in France in 2009. (shrink)

Is corporate social responsibility a tool for strategic positioning? While CSR is sometimes used as part of a differentiation strategy, this article analyzes which specific CSR strategies arise in response to competitive pressures. The results suggest that competitive pressures lead firms to increase their positive social actions without necessarily decreasing their social weaknesses. This positive impact varies with specific dimensions of CSR and industry specificities: Competition improves social performance toward core stakeholders to a greater extent than social performance toward peripheral (...) stakeholders. This effect is more pronounced in B2C industries than in other industries. Competition leads firms in “dirty” industries to ignore environmental initiatives. (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)

This study formulates a two-factor empirical model under the intertemporal CAPM framework to evaluate the cross-sectional implications of socially responsible investments in the US equity market. Our results show that socially responsible investments have no asset pricing impact on the US market. We argue that this ‘no financial impact’ finding indicates that investors will not be disadvantaged financially by investing in socially responsible funds or corporations.

Sustainable investment, which integrates social, environmental and ethical issues, has grown from a niche market of individual ethical investors to embrace institutional investors resulting in £764 billion in assets under management in the UK alone [Eurosif, 2008: ‘European SRI Study 2008’ ]. Explaining this growth is complex, involving shifts in personal and collective values, reactions to corporate scandals, scientific and media pronouncements about climate change, Government initiatives, responses from financial markets and the influence of SI innovators in The City of (...) London. The article examines the influence of human agency through interviews with 14 SI champions who have variously been responsible for launching SI funds and changing investment processes and organisational structures in order to enhance SI. Interviewees were asked about their motivations and persuasive strategies, the obstacles they faced and how they overcame them as well as broader implications of SI for financial markets. The following key categories inform the results and the discussion: Values; Conservatism, Antipathy and Incredulity; Optimism and Sympathy from Insiders; The Social and Political Context; The Business Case; Organisational Constraints; Inappropriate forms of Remuneration; Short-termism; The Nature of Capitalism. Three discourses were also identified. The first is the necessity to make a business case for SI; the second is the benefits that SI can bring to the quest of overcoming short-termism; the third is a belief that for SI to have a significant influence, greater government intervention is required. (shrink)

This study investigates antecedents of corporate social responsibility in multinational corporations' subsidiaries. Using stakeholder theory and institutional theory that identify internal and external pressures for legitimacy in MNCs' subsidiaries, we integrate international business and CSR literatures to create a model depicting CSR practices in MNCs' subsidiaries. We propose that MNCs' subsidiaries will be likely to adapt to local practices to legitimize themselves if they operate in host countries with different institutional environments and demanding stakeholders. We also predict that MNCs' subsidiaries (...) will be likely to adapt to local practices to avoid spillover effects if their parent companies suffer major legitimacy problems at home or abroad. However, we speculate that MNCs' subsidiaries will be less likely to adapt to local practices if they are strongly annexed to their parent companies and the benefit to gain internal legitimacy outweighs external legitimacy. This article contributes to the discourse on CSR across borders by exploring the antecedents of CSR practices in MNCs' subsidiaries at social and organizational levels, and integrating institutional and stakeholder views. We provide a number of propositions for future studies and explore implications for practitioners. (shrink)

Many writers have commented on the heterogeneity of the socially responsible investment (SRI) movement. However, few have actually tried to understand and explain it, and even fewer have discussed whether the opposite – standardisation – is possible and desirable. In this article, we take a broader perspective on the issue of the heterogeneity of SRI. We distinguish between four levels on which heterogeneity can be found: the terminological, definitional, strategic and practical. Whilst there is much talk about the definitional ambiguities (...) of SRI, we suggest that there is actually some agreement on the definitional level. There are at least three explanations which we suggest can account for the heterogeneity on the other levels: cultural and ideological differences between different regions, differences in values, norms and ideology between various SRI stakeholders, and the market setting of SRI. Discussing the implications of the three explanations for the SRI market, we suggest that there is reason to be sceptical about the possibilities of standardisation if not standardisation is imposed top-down. Whether this kind of standardisation is desirable or not, we argue, depends on what the motives for it would be. To the extent that standardisation may facilitate the mainstreaming of SRI, it could be a good thing – but we entertain doubts about whether mainstreaming really requires standardisation. (shrink)

In twentieth century Europe and the USA, industrial relations, labour, and workers' rights issues have been handled through collective bargaining and industrial agreements between firms and unions, with varying degrees of government intervention from country to country. This industrial relations landscape is currently undergoing fundamental change with the emergence of transnational industrial relations systems that complement existing national industrial relations systems. Despite the significance of this ongoing change, existing research has only started to explore the implications of this change for (...) how workers' rights are governed around the globe. This paper addresses this gap by outlining an agenda for future research into the transnational governance of workers' rights. Fulfilling such a research agenda would be both challenging, as it requires combining the so far divergent industrial relations and business ethics research streams, and rewarding, as it provides ample scope for promising future research. (shrink)

This article aims at providing a framework to assess corporate social responsibility with international banks. Currently, it is mainly rating institutions like EIRIS and KLD that provide information about firms’ social conduct and performance. However, this is costly information and it is not clear how the rating institutions arrive at their conclusion. We develop a framework to assess the social responsibility of internationally operating banks. We apply this framework to more than 30 institutions and find significant differences among individual banks, (...) countries, and regions. Furthermore, it appears that social responsibility of these banks has significantly improved between 2000 and 2005. (shrink)

Socially Responsible Investment indices play a major role in the stock markets. A connection between doing good and doing well in business is implied. Leading indices, such as the Domini Social Index and others, exemplify the movement toward investing in socially responsible corporations. However, the question remains: Does the ratings-based methodology for assessing corporate social responsibility provide an incentive to firms excluded from SRI indices to invest in CSR? Not in its current format. The ratings-based methodology employed by SRI indices (...) in their selection processes excludes many corporations by creating limited-membership lists. This received ratings-based structure is yet to offer an incentive for most of the excluded corporations to invest in improving their levels of CSR. We, therefore, ask under what circumstances a ratings-based method for assessing CSR could provide an incentive to firms excluded from SRI indices to invest in CSR. In this article, we attempt to offer a theoretical reply to this question. We show that when all firms are publicly ranked according to SRI index parameters, such indices can indeed create a market incentive for increased investment by firms in improving their performance in the area of social responsibility. We further show that this incentive tapers off as the amount of investment required exceeds a certain point or if the amount of payback on that investment fails to reach a certain threshold. (shrink)

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)

The pressure on companies to practice corporate social responsibility (CSR) has gained momentum in recent times as a means of sustaining competitive advantage in business. The pharmaceutical industry has been acutely affected by this trend. While pharmaceutical product recalls have become rampant and increased dramatically in recent years, no comprehensive study has been conducted to study the effects of announcements of recalls on the shareholder returns of pharmaceutical companies. As product recalls could significantly damage a company's reputation, profitability and brand (...) integrity, this paper investigates the effect on shareholder wealth and the extent to which the adoption of CSR practices by pharmaceutical companies in the United Kingdom (U.K.) and the United States (U.S.), the two largest markets for pharmaceutical products in the world, affected market reactions surrounding product recall announcements. The analysis of product recall announcements from 1998 to 2004 compiled from The Pharmaceutical Journal and U.S. Food and Drug Administration enforcement reports revealed marked differences in the way market participants in the two countries responded to news of product recalls. U.S. investors penalised firms according to the severity of product defects while U.K. investors were indifferent. While U.K. investors rewarded product recalls by firms which were not usually CSR-active, U.S. investors punished non-CSR active firms that performed recalls. These observations could pose strategic challenges to pharmaceutical firms operating in both countries. (shrink)

This article studies institutional investor allocations to the socially responsible asset class. We propose two elements influence socially responsible institutional investment in private equity: internal organizational structure, and internationalization. We study socially responsible investments from Dutch institutional investments into private equity funds, and compare socially responsible investment across different asset classes and different types of institutional investors (banks, insurance companies, and pension funds). The data indicate socially responsible investment in private equity is 40–50% more common when the decision to implement (...) such an investment plan is centralised with a single chief investment officer. Socially responsible investment in private equity is also more common among institutional investors with a greater international investment focus, and less common among fund-of-fund private equity investments. (shrink)

Corporations and investors are responding to recent major ethical scandals with increased attention to the social impacts of business operations. In turn, business colleges and their international accrediting body are increasing their efforts to make students more aware of the social context of corporate activity. Business education literature lacks data on student attitudes toward such education. This study found that postscandal business students, particularly women, are indeed interested in it. Their interest is positively related to their past donation, volunteerism, and (...) non-profit organization membership activities, whether limited or extensive. Some evidence supports the proposition that education can modify internal principles over time. We offer suggestions for classroom and program uses of these findings in hopes of enriching the vision of future business managers. (shrink)

Finance is grease to the economy. Therefore, we assume that it may affect corporate social responsibility (CSR) and the sustainability of economic development too. This paper discusses the transmission mechanisms between finance and sustainability. We find that there is no simple one-to-one relationship between financial development and sustainable development but there are various – often indirect – linkages. It appears that most of the literature concentrates on the role of public shareholders when it comes to changing corporate policy and performance (...) in a more sustainable direction. However, this focus neglects the potential impact of the credit channel and private equity on a firm’s non-financial policies and performance. These very powerful mechanisms can govern business policies and practices. Therefore, there appears to be much more scope for finance to promote socially and environmentally desirable activities and to discourage detrimental activities than has been acknowledged in the academic literature so far. (shrink)

For more than 15 years, the investment community and the academic community have written extensively on socially responsible investment (SRI). Despite the abundance of SRI thought, the adoption of SRI practices among institutional investors is a comparative rarity. This paper endeavours to achieve two goals. First, by integrating the practitioner and academic literature on the topic, the paper attempts to identify the many impediments to SRI in Europe from an institutional investor's perspective. Second, the paper proposes a unitary framework to (...) conceptually organize the impediments to SRI by using insights from different relevant research perspectives: behavioural finance, organizational behaviour, institutional theory, economic sociology, management science and finance. The paper concludes by presenting the main shortcomings within both the academic and the practitioner literature on SRI and by providing conceptual and methodological recommendations for further research. (shrink)

This paper investigates the impact of negative screening on the investment universe as well as on financial performance. We come up with a novel identification process and as such depart from mainstream socially responsible investing literature by concentrating on individual firms’ conduct and by studying a much wider range of issues. Firstly, we study the size and financial performance of fourteen potentially controversial issues: abortion, adult entertainment, alcohol, animal testing, contraceptives, controversial weapons, fur, gambling, genetic engineering, meat, nuclear power, pork, (...) stem cells, and tobacco. We investigate an international sample of more than 1,600 stocks for more than twenty years. We then analyze the impact of applying negative screens to a market portfolio. Our findings suggest that the choice for negative screening strategies does matter for the size of the investment universe as well as for risk-adjusted return performance. Investing in controversial stocks in many cases results in additional risk-adjusted returns, whereas excluding them may reduce financial performance. These findings suggest that there are opportunity costs to negative screening. (shrink)

The aim of this study is to analyse how secondary stakeholders influence managerial decision-making on Corporate Social Responsibility disclosure. Based on stakeholder salience theory, we empirically investigate whether differences in environmental disclosure among companies are systematically related to differences in the level of power, urgency and legitimacy of the environmental non-governmental organisations with which these companies are confronted. Using proprietary archival data for an international sample of 199 large companies, our results suggest that differences in environmental disclosures between companies are (...) mainly associated with differences between their environmental stakeholders’ legitimacy. The effects of power and urgency are of an indirect nature, as they are mediated by legitimacy. This study improves our understanding of CSR disclosure by demonstrating that, next to the well-documented effect of company characteristics, stakeholder characteristics are also important. Besides, it provides scarce empirical evidence that not only primary stakeholders, but also secondary stakeholders are influential with regards to management decision-making. And more specifically, it offers insight into why some stakeholder groups are better able to influence disclosure decisions than other. The results also have important practical implications for managers of both environmental NGOs and large companies. For managers of environmental NGOs the results provide evidence of the most successful tactics for having their environmental information demands satisfied by companies. For company management the results provide insights into the most important stakeholder characteristics, on the basis of which they may develop strategies for proactively disclosing environmental information. (shrink)

Smith defines the business enterprise primarily as the endeavor of an individual who remains fully embedded in the broader society and subject to its moral demands. For him, the conceptions of the local community and its normative framework, of the enterprise, and of the individuals within it need to be aligned with each other and developed together. Over time, four processes have, however, led to a widening gap between the business world and the local community. These are the dissemination of (...) the corporate model, the transformation of the entrepreneurial role toward an agency role, changes in the ownership structure, and changes in the relation to the local community. This article presents Smith’s integrative conception of business and its contributions to the development of integrative theories of organizations and of business–society relations in the twenty-first century. Among others, it discusses the necessity to develop a normative-relational dimension of organizations that addresses the relations between the organization, its members, and the normative framework of the local community. This integrative approach of business–society relations challenges current business ethics research which often suggests that solutions to the current scandals lie either within the framework, the organization, or the individuals. (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)

Although sustainable and responsible investment (SRI) has quite recently become a hot research topic, scarcely any systematic research has been paid to the performance of this non-conventional approach to investment during the financial crisis that emerged in mid-2008 when the resilience of the financial markets was sorely tested. Such real-world resilience in practice is the subject of the current research which tests whether environmental, social and governance screens provides ethical investors with adaptive resilience in bull and bear market conditions by (...) focussing on the SRI equity index of one of the most active markets in Europe in terms of ethical investment, the FTSE4Good-Ibex in Spain. Multivariate Generalized Autoregressive Conditional Heteroskedasticity (M-GARCH) analysis indicates that ethical investors in the equity market examined with evidence that greater resilience in severe business cycle shocks could be attributable to SRI by companies. Although limited to a single country study, the results have implications for investors seeking resilience in crisis: when individual values and beliefs towards sustainability tie with personal investment strategy, the end result is adaptive financial resilience, social well-being and environmental defence. (shrink)

Applying value relevance analysis to a sample of European banks, we test the following: (i) the direct effects of the sustainability report on stock price; (ii) whether the report modifies the value relevance of financial accounting variables (indirect effects); and (iii) whether the value relevance of sustainability reports varies across countries. Results show that investors appreciate the additional and complementary disclosure provided by the sustainability report and that this disclosure produces a positive effect on stock prices. Estimates of the indirect (...) effects demonstrate that it has a negative influence on book value per share, whereas the effect on earnings per share is not significant. Cross-country analysis shows that the value relevance of the sustainability report varies across European countries, consistent with the hypothesis that the value relevance of the sustainability report is likely to be influenced by different institutional contexts. (shrink)

As Socially Responsible Investment (SRI) enters the mainstream of professional and institutional investment practice, some perplexities arise. Some SRI market participants are well schooled in finance but are hesitative as to how to apply non-financial criteria in the management of portfolios. Governments too are giving SRI more attention and, in some countries, are discussion whether and how to regulate the SRI market. Advocacy groups are targeting SRI projects through media campaigns using political discourse. Many of the pertinent questions that come (...) with these perplexities are of the philosophical or ethical type and concern legitimisation, demarcation of responsibilities, interpretation of norms and policy formulation. The inclusion of non-financial criteria into investment decision-making leads to a 'puzzle in SRI' for which this article offers a solution. The puzzle arises when the day-to-day implementation of an SRIpolicy coincides with the process of administering justice. Three questions make up that puzzle: (1) what should an investor do when allegations arise about a corporation, (2) what should an investor do when a corporation is brought before a court, (3) what should an investor do when a corporation is found guilty by a court. This article argues, by distinguishing between the rationality of the investor and that of the judge, that allegations, court cases or court verdicts should not be reasons to disinvest from a corporation. This article offers examples from investor practice and points out in which way allegations, court cases and court verdicts make sense for investor behaviour. (shrink)

Philanthropic venture capital (PhVC) is a financing option available for social enterprises that, like traditional venture capital, provides capital and value-added services to portfolio organizations. Differently from venture capital, PhVC has an ethical dimension as it aims at maximizing the social return on the investment. This article examines the deal structuring phase of PhVC investments in terms of instrument used (from equity to grant), valuation, and covenants included in the contractual agreement. By content analyzing a set of semistructured interviews and (...) thereafter surveying the entire population of PhVC funds that are active in Europe and in the United States, findings indicate that the non-distribution constraint holding for non-profit social enterprises is an effective tool to align the interests of both investor and investee. This makes the investor behaving as a steward rather than as a principal. Conversely, while backing non-profit social ventures, philanthropic venture capitalists structure their deal similarly as traditional venture capital, as the absence of the non-distribution constraint makes such investments subject to moral hazard risk both in terms of perks and stealing and social impact focus. (shrink)

The growth of socially responsible investment (SRI) on public financial markets has drawn considerable academic attention over the last decade. Discarding from the previous literature, this article sets up to analyze the Private Equity channel, which is shown to have the potentiality to foster sustainable practices in unlisted companies. The fast integration of the environmental, social and governance issues by mainstream Private Equity investors is unveiled and appears to have benefited from the maturation of SRI on public financial markets and (...) the impetus of large conventional actors. Hypotheses on the characteristics and drivers of this movement are proposed and tested on a unique database covering the French Private Equity industry in 2011. Empirical findings support that Private Equity socially responsible investing is characterized by investor engagement and strategically driven by a need for new value creation sources, increased risk management and differentiation. In particular, results show that independent funds, which need to attract investors, are more likely than captive funds to develop socially responsible practices. Evolution of the movement and future research paths are proposed. (shrink)

This article discusses moral issues raised by defined contribution retirement plans, specifically 401(k) plans in the United States. The primary aim is to defend the claim that the federal government ought to require 401(k) plans to include a range of socially responsible investment (SRI) options. The analysis begins with the minimal assumption that corporations engage in behavior that imposes morally impermissible harms on others with sufficient regularity to warrant attention. After motivating this assumption, I argue that individual investors typically share (...) in the responsibility for the harms imposed by corporations in which they invest, and that they therefore have a moral obligation to incorporate considerations of social responsibility into their investment decisions, when possible, to avoid being complicit in morally impermissible corporate behavior. I further argue that individuals are subject to substantial institutional and structural pressures that create a powerful incentive to invest in 401(k) plans, even though such plans typically lack any SRI options. To eliminate this pressure to commit indirect harm in the process of saving for retirement, I recommend that the federal government requires 401(k) plans to incorporate a range of SRI options, and I defend this proposal from several possible objections. (shrink)

This paper investigates the stock market reaction to the announcement that a firm has been included in the UK FTSE4Good index of socially responsible firms. We use the announcement of firm inclusion in the index to estimate the stock market reaction to a firm being classified as socially responsible. This is an important test of whether investors view the undertaking of socially responsible activities by firms as a value increasing or value decreasing initiative by management. We do not find strong (...) evidence in favour of a positive market reaction. However, there is a large cross-sectional variation in the market reaction to this announcement. Investors appear to be reacting to this event and there are a number of firm characteristics that are well-established proxies for CSR that can explain the market reaction. (shrink)

Research on corporate social responsibility (CSR) has tended to focus on external stakeholders and outcomes, revealing little about internal effects that might also help explain CSR-firm performance linkages and the impact that corporate marketing strategies can have on internal stakeholders such as employees. The two studies ( N = 1,116 and N = 2,422) presented in this article draw on theory from both corporate marketing and organizational behavior (OB) disciplines to test the general proposition that employee trust partially mediates the (...) relationship between CSR and employee attitudinal and behavioral outcomes. Both studies provide evidence in support of these general relationships. Theoretical and practical implications of these findings are discussed in the context of CSR and corporate marketing research. (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)

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)

Socially Responsible Investment (SRI) has grown considerably over the past three decades. One form of SRI, engagement-SRI, is today by far the most practiced form of SRI (in assets managed) and has the potential to mainstream SRI even further. However, lack of formalized engagement procedures and evaluation tools leave the engagement practice too opaque for such a mainstreaming. This article can be considered as a first step in the development of a standard for the engagement practice. By developing an engagement (...) heuristic, this article offers a more transparent engagement dialog. Drawing on Stevenson's and Austin's speech-act theories, this article develops a classification of management's responses to the signaling of allegations and controversies on two dimensions: a factual dimension concerning (dis)agreements on factual claims and an attitudinal dimension concerning (dis)agreements on responsibilities, values, and norms. On the basis of the distinctions this article develops, the authors provide for a synoptic table and offer a next-step heuristic for the engagement process that started with signaling a concern to management. The article uses an engagement logic that, while keeping the exit option for the investor open, allows management to address signaled concerns without having to let down or to opt out at the first setback in the dialog process between investor and investee corporation. (shrink)

For more than 15 years, the investment community and the academic community have written extensively on socially responsible investment. Despite the abundance of SRI thought, the adoption of SRI practices among institutional investors is a comparative rarity. This paper endeavours to achieve two goals. First, by integrating the practitioner and academic literature on the topic, the paper attempts to identify the many impediments to SRI in Europe from an institutional investor's perspective. Second, the paper proposes a unitary framework to conceptually (...) organize the impediments to SRI by using insights from different relevant research perspectives: behavioural finance, organizational behaviour, institutional theory, economic sociology, management science and finance. The paper concludes by presenting the main shortcomings within both the academic and the practitioner literature on SRI and by providing conceptual and methodological recommendations for further research. (shrink)

This paper explores semi‐formal interactions between SRI‐investors that take the governance route rather than deploy a best‐in‐class logic or exclusionary screening. On the basis of a stakeholder typology of the investor and of the chosen topic of interaction, namely compliance with the core ILO labour conventions, the paper formulates 10 expectations about management reactions to the concerns raised by investors. These expectations cover responsiveness, acknowledgment of positions and general attitude. The expectations are then related to the factual discourse by management (...) responding to such concerns raised by investors. Based on data obtained from the Portfolio21‐correspondence, which is a joint initiative of European investors, it is found that management is very willing to discuss cases but at the same time denies the truth‐value of the allegations. Here, the problem of information asymmetry comes to the fore. (shrink)

This paper examines voluntary corporate social responsibility (CSR) reporting as a form of moral discourse. It explores how alternative stakeholder perspectives lead to differing perceptions of the process and content of responsible reporting. We contrast traditional stakeholder theory, which views stakeholders as external parties having a social contract with corporations, with an emerging perspective, which views interaction among corporations and constituents as relational in nature. This moves the stakeholder from an external entity to one that is integral to corporate activity. (...) We explore how these alternative stakeholder perspectives give rise to different normative demands for stakeholder engagement, managerial processes, and communication. We discuss models of CSR reporting and accountability: EMAS, the ISO 14000 series, SA8000, AA1000, the Global Reporting Initiative, and the Copenhagen Charter. We explore how these models relate to the stakeholder philosophies and find that they are largely consistent with the traditional atomistic view but fall far short of the demands for moral engagement prescribed by a relational stakeholder perspective. Adopting a relational view requires stakeholder engagement not only in prescribing reporting requirements, but also in discourse relating to core aspects of the corporation such as mission, values, and management systems. Habermas’ theory of communicative action provides guidelines for engaging stakeholders in this moral discourse. (shrink)

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)

The concept of sustainable and responsible (SR) investments expresses that every investment should be based on the SR investor’s code of ethics. To a large extent the allocation of SR investments to more sustainable companies and ethical practices is based on the environmental, social, and corporate governance (ESG) scores provided by rating agencies. However, a thorough investigation of ESG scores is a neglected topic in the literature. This paper uses Thomson Reuters ASSET4 ESG ratings to analyze the influence of firm (...) size, a company’s available resources for providing ESG data, and the availability of a company’s ESG data on the company’s sustainability performance. We find a significant positive correlation between the stated variables, which can be explained by organizational legitimacy. The results raise the question of whether the way the ESG score measures corporate sustainability gives an advantage to larger firms with more resources while not providing SR investors with the information needed to make decisions based on their beliefs. Due to our results, SR investors and scholars should reopen the discussion about: what sustainability rating agencies measure with ESG scores, what exactly needs to be measured, and if the sustainable finance community can reach their self-imposed objectives with this measurement. (shrink)

Based on the concept of shareholder primacy, many scholars have argued that it is more important for businesses to earn profits for their shareholders than to provide benefits to society at large. Corporate social responsibility is often regarded as an investment that comes at the expense of shareholders. In contrast, research analyzing the connections between the equity ownership structure of a company and its level of CSR engagement suggests that CSR offers benefits to shareholders that go beyond direct financial returns (...) from investments. This study provides a comprehensive review and systematic assessment of theoretical considerations and approaches regarding different forms of equity ownership and their relationships to CSR, and it discusses the relevant benefits and motivations of shareholders. The perceived value of these CSR benefits varies among different types of shareholders, as they assign unequal values to short-term financial or to rather long-term CSR benefits. Based on a literature sample of 146 publications, this review demonstrates central problems inherent in previous analyses. Given the ambiguous and partially contradictory findings of prior research, this study identifies potential moderating influences that help clarify empirical evidence. A contingency approach is suggested in future research, as this can help resolve the problem of contradictory empirical findings and theoretical arguments. (shrink)

Corporate social responsibility (CSR) continues to gain attention atop the corporate agenda and is by now an important component of the dialogue between companies and their stakeholders. Nevertheless, there is still little guidance as to how companies can implement CSR activity in order to maximize returns to CSR investment. Theorists have identified many company-favoring outcomes of CSR; yet there is a dearth of research on the psychological mechanisms that drive stakeholder responses to CSR activity. Borrowing from the literatures on meansend (...) chains and relationship marketing, we propose a conceptual model that explains how CSR provides individual stakeholders with numerous benefits (functional, psychosocial, and values) and how the type and extent to which a stakeholder derives these benefits from CSR initiatives influences the quality of the relationship between the stakeholder and the company. The paper discusses the implications of these insights and highlights a number of areas for future research. (shrink)

With assets of over US$1.0 trillion and growing, public pension funds in the United States have become a major force in the private sector through their holding of equity positions in large publicly traded corporations. More recently, these funds have been expanding their investment strategy by considering a corporation's long-term risks on issues such as environmental protection, sustainability, and good corporate citizenship, and how these factors impact a company's long-term performance. Conventional wisdom argues that the fiduciary responsibility of the pension (...) funds' trustees must be solely focused on their beneficiaries and, therefore, their investment criteria must be based strictly on narrowly defined financial measures. It is also asserted that well-established financial measurements of corporate performance already include long-term risk assessment through discounted present value of future flow of earnings. Consequently, all other criteria are contrary to the best interest of the pension funds' beneficiaries. In this paper, we assert that, contrary to conventional wisdom, pension funds, and for that matter other mutual funds, must be concerned with the long-term survival and growth of corporations. These measures are generally referred to "socially responsible investing" and when applied to corporations, it is termed "socially responsible corporate conduct." We demonstrate that current measurement of future risk assessment invariably understates, and quite often completely overlooks, these long-term risks because of the inherent bias towards short-run on the part of financial intermediaries whose compensation depends greatly on short-term results. Furthermore, there is ample evidence to suggest that these intermediaries have been engaging in self-serving practices and thus failing in their duties to serve their clients', i.e. pension funds', best interests. Because of their large holdings in the total market as well as individual companies, these funds cannot easily divest from poorly performing companies without destabilizing the companies' stock and overall markets. Hence, they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long-term aspects of their operations in terms of their impact on environment, sustainability, and community welfare, to name a few. We argue that an exclusionary, and even a primary, focus on short-term financial criteria is no longer a viable option. It also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance. Thus socially responsible investing practices are not merely discretionary and desirable activities; they are a necessary imperative, which both the corporations and public pension funds, and other large institutional holders, will ignore at serious peril to themselves. Finally, the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities. It also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long-term corporate survival and growth in the context of a changing economic, environmental and socio-political dynamic. (shrink)

There is a move towards more use of engagement strategies in responsible investment. This change in strategies is motivated by a number of claims about the effectiveness of engagement versus exclusion of companies from the investment universe. This paper examines the basis for three central claims: That engagement, in contrast to exclusion, does not reduce the investment universe; That exclusion reduces an investor's influence on a company; and That engagement with exclusion is necessarily a more effective means of influencing companies (...) than pure exclusion. All three claims are argued to be open to challenge. It is possible that the move towards more engagement reflects bureaucratic incentives and political considerations among institutional investors, rather than arguments about the effectiveness and efficiency of engagement. (shrink)

This study examines the relationship between pension fund ownership of companies and corporate social performance using a unique database of more than 500 publicly listed U.K. companies. The empirical analysis emphasizes the heterogeneous character of pension fund holdings and the multidimensional nature of corporate social performance. The results highlight that the characteristics of pension fund management are significant drivers of preferences for social performance and that employee-related aspects of social performance are preferred by pension funds.

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)