The risk in socially responsible investing: the other side of the coin

2019 ◽  
Vol 20 (1) ◽  
pp. 14-38 ◽  
Author(s):  
Alberto Burchi
Keyword(s):  
Academic Research ◽  
Continuous Optimization ◽  
Investment Strategies ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
The Real ◽  
Responsible Investing ◽  
Average Return ◽  
Risk Indices

Purpose The field of socially responsible investment (SRI) has become a central theme in the mutual funds industry. The risk implications associated with this investment approach are less explored. This study further investigates the real contribution to the investor offered by the SRI alternative.The aim of this paper is to throw more light on this debate. Design/methodology/approach Analyzing a large sample of US companies, this study investigates the tendency to generate risk when the portfolio is built, taking into account SRI. The research is based on the backtest of the real performance obtainable by adopting different investment strategies in which the red line is the selection method based on the principles of corporate social responsibility. Findings The investor must pay a cost that depends on the degree of rigor in the selection criteria. The risk associated with SRI is influenced by the measure adopted. SRI has a better asymmetric risk behavior than other securities. The results suggest using different selection models according to the investor’s objectives. When the objective is to maximize the average return and the remuneration risk, the SRI selection model should be negative or at least as inclusive as possible. In the event that the investor’s objective is to contain risk indices, a restrictive approach to the selection of investments is advisable. Originality/value Academic research has long been investigating the ability to generate profits but often neglects the levels of risk implicit in such investment approaches. The originality of this research consists in the adoption of a model based on the continuous optimization of the portfolio. This approach allows the results to be assessed by the returns actually obtained.

Socially responsible investing: a review of the critical issues

2015 ◽  
Vol 41 (11) ◽  
pp. 1176-1201 ◽  
Author(s):  
Joan Junkus ◽  
Thomas D. Berry
Keyword(s):  
Mutual Funds ◽  
Firm Value ◽  
Socially Responsible Investing ◽  
Model Specification ◽  
Future Research ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Definitive Answer ◽  
Responsible Investing

Purpose – The purpose of this paper is to provide a review of the most recent work in major finance journals on socially responsible investment (SRI). While SRI involves individual investors, firms, and investment managers, the authors concentrate primarily on the investment view. Design/methodology/approach – The authors briefly review the development of socially responsible investing (SRI) and the theoretical issues related to SRI and investment choice. This is followed by a review of the empirical results concerning firm value. The question of whether SR mutual funds and SR indexes differ in performance or other characteristics from their conventional counterparts is discussed next, and lastly the authors present suggestions for future research directions. Findings – Despite the large and extensive amount of empirical research published on SRI in recent years, the authors find no definitive answer to the question of SR actions for either the firm or the investor. For firms, evidence linking corporate social responsibility (CSR) rankings with higher value is mixed, and depends on the type of CSR behavior studied as well as the measures of firm performance used. The performance of SR mutual funds and indexes generally are not significantly different from conventional funds or indexes, but again these results are also highly dependent on model specification, time period, benchmark, and other characteristics of the study. Practical implications – The value of SR investing has not been definitely proved. This means, however, that there is room for further on this important topic. Originality/value – This paper synthesizes and presents the most recent research on SRI from a wide variety of refereed sources.

Sustainability-themed mutual funds: an empirical examination of risk and performance

2018 ◽  
Vol 19 (3) ◽  
pp. 247-261 ◽  
Author(s):  
Federica Ielasi ◽  
Monica Rossolini ◽  
Sara Limberti
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Investment Strategies ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Fund Managers ◽  
And Performance ◽  
Sustainable And Responsible Investment ◽  
Ethical Funds

PurposeThis paper aims to analyze the portfolio characteristics and the performance measures of sustainability-themed mutual funds, compared to ethical mutual funds that implement different sustainable and responsible investment strategies.Design/methodology/approachThe study refers to a European sample of 106 ethical funds and 51 sustainability-themed funds. The monthly performance of each fund is downloaded from Bloomberg for the period from January 1996 to December 2015. By applying a Fama and French (1993) three-factor model, the authors overcome the limits of a capital asset pricing model (CAPM) based-single index model, to compare the performance of the two categories of funds.FindingsSustainability-themed funds do not differ significantly from ethical funds in terms of portfolio attributes, except for market capitalization, age and net asset value. Regarding performance measures, the results shows that sustainability-themed funds have a lower underperformance than ethical funds (as measured by Jensen’s alpha), whereas the samples do not differ in terms of market risk (as measured by Beta coefficient). The idiosyncratic risk of sustainability-themed funds is positively influenced by the specific portfolio strategies. The sustainability-themed funds show a higher concentration in the industrial sector and a lower exposure to financial sector than ethical funds; in terms of geographical strategy, they are more global and international oriented; they mainly focus on small caps and value stocks.Research limitations/implicationsThe different sustainable and responsible investment strategies can be applied simultaneously and in a growing number of possible combinations. Mutual fund managers can consider thematic approach as an efficient opportunity for reconciling financial performance and economic sustainability. It is demonstrated that sustainability-themed funds adopt a portfolio strategy significantly different from ethical funds and from the environmental, social and governance benchmarks. Mutual fund managers implement a thematic specialization without any negative impact on the funds returns compared to ethical funds; actually, with a proper diversified portfolio, they are able to reduce idiosyncratic risk.Originality/valueThe analysis is extremely innovative, especially for the thematic sample. During the past 15 years, literature about sustainable and responsible investment has been focused especially on the differences in terms of risk and performance between socially responsible and conventional funds. This paper, starting from the methodology applied in these studies, wants to compare two different types of socially responsible strategies, with a specific focus on sustainability-themed mutual funds, given their exponential growth in the past few years.

Exploring the strategic variety of socially responsible investment

2019 ◽  
Vol 10 (3) ◽  
pp. 545-569 ◽  
Author(s):  
Ana Ivanisevic Hernaus
Keyword(s):  
Research Effort ◽  
Socially Responsible Investment ◽  
Social Implications ◽  
Investment Strategies ◽  
Financial Industry ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Financial Investment ◽  
Weak Intensity

Purpose The purpose of this study is to segment and profile socially responsible investment (SRI) funds based on investment strategies they use. Specifically, the paper investigates how different SRI strategies are applied and how they are related to fund-level characteristics, with the goal of recognising their potential dominant combinations in SRI practice. Design/methodology/approach Cluster analysis was complemented with one-way ANOVA to classify 147 SRI funds from 11 European countries into different groups based on the diversification (number and type) and application (intensity of usage) of the investment strategies. Discriminant analysis and chi-square tests were conducted to profile the clusters. Financial performance was examined by running multiple hierarchical regression and dominance analyses to determine meaningfulness of particular investment strategies within each of the SRI fund clusters. Findings Three basic SRI fund clusters were recognised: strong-intensity strategic heterogeneity, weak-intensity strategic heterogeneity and weak-intensity strategic homogeneity. The combination of SRI strategies used in the weak-intensity strategic homogeneity cluster significantly explained the variance in mid-term financial returns. Practical implications Fund managers may use these results to make more informed investment decisions on the selection and the application of SRI strategies. Social implications Financial industry has significant and broad and not only economic but also social implications. This research effort results in better understanding of the SRI universe, potentially leading to a broader consideration of the societal impact of financial investment. Originality/value The author provided useful insights into existing bundles of SRI strategies used in the European SRI market, recognised dominant investment strategies within SRI strategy portfolios and reported how strategic variety is related to fund-level characteristics.

scholarly journals Socially responsible investment strategies for the transition towards sustainable development: the importance of integrating and communicating ESG

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mauro Sciarelli ◽  
Silvia Cosimato ◽  
Giovanni Landi ◽  
Francesca Iandolo
Keyword(s):  
Sustainable Development ◽  
Asset Management ◽  
Small Sample ◽  
Sustainable Growth ◽  
Investment Strategies ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Sustainable Finance ◽  
Multiple Case

PurposeRecently, socially and responsible investments (SRI) have constantly grown becoming a highly discussed issue. Therefore, the main purpose of this paper is to better understand if environmental social governance (ESG) criteria integration in investment strategies can support the transition of finance toward a more sustainable growth.Design/methodology/approachAn explorative analysis based on a multiple case study has been conducted and addressed by a content analysis on the Key Investors Information Documents (KIIDs) that the sample companies published for 2020.FindingsThe achieved results demonstrated that the case companies differently integrated ESG into their SRI; thus, if some of them are quite near to a full integration, the others demonstrated less than a full commitment with ESG. This seems to be mainly due to the different approach that asset management companies (AMCs) and/or managers have adopted for integrating ESG criteria.Research limitations/implicationsEven though the achieved results offered some interesting insights for asset managers, the explorative and qualitative nature of this study and the small sample investigated somewhat limits it.Practical implicationsAMCs, consultants and managers in developing and implementing their SRI strategy could be much more focused on the importance of ESG integration for the transition toward a more responsible and sustainable finance (micro-level) as well as a more sustainable development (macro-level).Originality/valueThe paper provides new insights into the essence of SRI strategies and their potential to contribute to sustainable development. Thus, it tries to shed new lights on the role that ESG can have to stimulate and support investment decisions and, in so doing, contributing to make finance grow more sustainable.

Understanding Socially Responsible Investing and Its Implications for Islamic Investment Industry

2019 ◽  
Vol 7 (1) ◽  
pp. 1
Author(s):  
Mohd Nizam Barom
Keyword(s):  
Investment Decision ◽  
Socially Responsible Investing ◽  
Clear Understanding ◽  
Socially Responsible ◽  
Responsible Investment ◽  
Developed Economies ◽  
Responsible Investing ◽  
Screening Strategies ◽  
Investment Process ◽  
Islamic Investment

Understanding Socially Responsible Investing and Its Implications for Islamic Investment Industry // // // // // Social, ethical and environmental concerns have been used as important consideration for investment decision by an increasing number of investors. This can be seen by the size and growth of the socially responsible investment (SRI) industry in the developed economies. At the same time, scholars and commentators of Islamic finance have also called for Islamic investment industry to learn from the experience of SRI in incorporating social responsibility issues in the investment process, in line with the ethical principles of Islam and the overall objective of the Shari’ah (Maqasid al-Shari’ah). This would require Islamic investment sector to have a clear understanding of the SRI industry in order to effectively benefit from its experience. This is particularly critical due to the significant diversity of investors and complexity in the issues and strategies adopted in the SRI industry. Hence, this paper adds to the Islamic investment literature by providing an extensive  and systematic survey of SRI industry in terms of its (i) underlying motivations and values; (ii) issues of concerns; (iii) types of investors; and (iv) screening strategies. It then synthesizes these components within the context of the ‘value-based’ investors. This synthesized framework offers a useful tool for Islamic investment practitioners to understand the theoretical and practical aspects of SRI. Subsequently, the paper highlights important implications of the findings for Islamic investment industry in terms of the issues that it needs to consider in emulating SRI practices and a number of lessons that it can learn from the SRI experience.  

Private ethical fund investors across countries and time: a survey-based review

2015 ◽  
Vol 7 (4) ◽  
pp. 379-411 ◽  
Author(s):  
Anett Wins ◽  
Bernhard Zwergel
Keyword(s):  
Keyword Search ◽  
Relevant Literature ◽  
Future Research ◽  
Socially Responsible ◽  
Screening Criteria ◽  
Content Type ◽  
Responsible Investment ◽  
Private Investors ◽  
Ethical Funds ◽  
Fund Portfolio

Purpose – This paper aims to provide an overview of the literature to point out similarities and differences among private ethical investors across countries and time. Over the past three decades, many surveys have been conducted to advance the understanding of the demographic characteristics, motivation and morals of private ethical investors across countries and time. To date, the survey-based evidence on private investors into ethical funds is geographically rather segmented, and the research questions are fairly diverse. This permits only very temporally or regionally selective conclusions. Thereby, the authors identify interesting topics for future research. Design/methodology/approach – To identify the relevant literature for our review, the authors carried out a structured Boolean keyword search using major library services and databases. Findings – When questions about negative screening criteria are presented in a direct investment context, the consensus of private ethical investors “worldwide” (on average) is that social screening issues are most important, followed by ecological and moral topics. The percentage of ethical funds in the fund portfolio of the average private ethical investor in Europe seems to increase when the investor exhibits high degrees of pro-social attitudes and perceived consumer effectiveness. European private ethical investors are of the opinion that ethical funds perform worse but are less risky than conventional funds. Practical implications – The authors make suggestions on how investment companies should design their funds so that they can attract more socially responsible investors. Originality/value – The paper is of particular value because it focuses on private investors in the fast growing retail market of socially responsible investment funds.

scholarly journals STRUCTURAL-FUNCTIONAL APPROACH TO IDENTIFICATION OF RESPONSIBLE INVESTMENT

2021 ◽  
Vol 2021 (1) ◽  
Author(s):  
A. Vorontsova ◽  
A. Rudychenko ◽  
L. Zakharkina
Keyword(s):  
Social Issues ◽  
Functional Approach ◽  
Socially Responsible ◽  
Responsible Investment ◽  
Responsible Investing ◽  
Main Requirement ◽  
Initial Stage ◽  
Analysis And Synthesis ◽  
Integrated Concept ◽  
Social Environmental

Numerous environmental problems, the consequences of the financial crisis, the aggravation of social issues (such as poverty, unemployment, other consequences of the COVID-19 pandemic etc) cause the need for the evolution of financial instruments in the field of investment. The main requirement is a reasonable investment, which involves focusing not only on financial benefits but also to promote social, environmental and economic (or sustainable) development. This work is devoted to the use of structural and functional approach to the identification of responsible investment. This allows us to consider such an investment concept as a complex system formed of interconnected functional elements. To do this, the author conducted a study of the essence of responsible investing and its main criteria. These primarily include consideration of various environmental, social and managerial factors (ESG-factors) in making management decisions. The next step is to analyze the approaches of domestic and foreign scientists to determine the main forms of responsible investment. Based on this, the stage formation of the concept of responsible investing is formed in the work. At the initial stage, there is the use of various forms of responsible investing, depending on the purpose of investors and the period time: ethical, green, thematic, impact investing. In the second stage, the idea of socially responsible investment was developed, and later - sustainable investment. The final stage is the allocation of responsible investment as a separate integrated concept that meets modern requirements. To better understand the distinction between certain forms of responsible investment in the work, their gradation depending on the orientation on financial or social goals has been studied. The study is theoretical and involved the use of general scientific methods: structural and functional approach, analysis and synthesis, grouping and logical generalization. The provisions formed in the article allow forming a theoretical basis within the research, which will be used for further work in this direction.

Sustainable and responsible investment funds in Europe

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jitka Sládková ◽  
Daniela Kolomazníková ◽  
Sylvie Formánková ◽  
Oldřich Trenz ◽  
Jan Kolomazník ◽  
...  
Keyword(s):  
Score Distribution ◽  
Investment Funds ◽  
Content Type ◽  
Responsible Investment ◽  
Responsible Investing ◽  
The Social ◽  
Sustainable Investment ◽  
Key Barrier ◽  
Sustainable And Responsible Investment ◽  
Rating Distribution

Purpose The sustainable and responsible investing (SRI) is the part of sustainable investment which focusses on mutual funds. The purpose of this paper is to map and evaluate all the active European SRI funds, their performances and correlation with the national identity. Design/methodology/approach The sample of the research was analysed with descriptive statistics, mainly the frequency, the mean and the correlation analysis. A well-known volatility is represented by the synthetic risk and reward indicator (SRRI). Other two ratings are the environmental, social and governance (ESG) funds score distribution and the ESG funds letter rating distribution. Findings SRI investment may seem to be performing better than in the funds with a different focus. The segment of SRI funds will grow for the next decade. Research limitations/implications There is a lack of definitions and clear metrics for sustainable investing. For better performance, it would be also appropriate to examine each country separately. Practical implications This paper is part of the project targeting to design a model and methodology of SI evaluation taking into account ESG factors and risks, including profitability in a selected sector. This model can be used by investors for better decision-making. Social implications The paper focusses on the funds selecting investments that fulfil ESG criteria, which are part of the social responsibility and sustainability. Originality/value An analysis of the current approaches to evaluating investments shows that the key barrier in the transitions to sustainable investment is not taking into account the ESG factors. The research in this paper includes the ESG factors in the evaluation.

scholarly journals Efficiency of the Public Pensions Funds on the Socially Responsible Equities of Mexico

2018 ◽  
Vol 11 (1) ◽  
pp. 178
Author(s):  
Oscar De la Torre-Torres ◽  
Evaristo Galeana-Figueroa ◽  
José Álvarez-García
Keyword(s):  
Investment Strategy ◽  
Pension Funds ◽  
Socially Responsible Investment ◽  
Socially Responsible ◽  
Responsible Investment ◽  
Risk Indices ◽  
Investment Level ◽  
Significant Difference ◽  
Time Periods ◽  
Mean Variance

In the present work, we test the mean-variance efficiency that Mexican public pension funds would have shown had these invested their local equity portfolio component only in socially responsible stocks. With a daily simulation (from 1 January 2005 to 31 July 2018) of the Standard & Poors (S&P) Mexico target risk indices, we found that there was no significant difference between the more conservative pension funds that invested only in the Price Index and Quotations (IPC) sustainable index against the ones that invested in the conventional IPC. In the case of the more aggressive type of pension funds (those with a higher Mexican equity investment level), a lower mean-variance efficiency would have been observed had these invested in the IPC sustainable index. We also found, with a two-regime Markov-switching analysis, that socially responsible investment would have been better for most of these pension funds during distress time periods. Even if our results do not give strong short-term proof for the use of a socially responsible investment strategy in the most aggressive pension funds, we found that the benefits will be observed in the long-term, due to a better performance during distress time periods and the lag effect of mid and small-cap stocks in the performance.

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