Organizational signals about corporate social responsibility may have a harmful impact on equity markets for two main reasons. First, corporate social responsibility is not systematically correlated with companies' economic fundamentals. Second, opportunistic managers are incentivized to distort information provided to market participants about their firms' corporate social responsibility. Either causal force, by itself, makes it difficult for market participants to interpret information about corporate social responsibility accurately. This greater noise in financial markets typically invites more noise trading, which in turn leads to excess market volatility (among all publicly traded firms) and, in a particular context of social-institutional processes and structures, to excess market valuations of firms that are widely perceived as socially responsible.

Corporate Social Responsibility, Noise, and Stock Market Volatility

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.

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Socially Responsible Investment and Fiduciary Duty: Putting the Freshfields Report into Perspective

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

Putting Sustainable Investing into Practice: A Governance Framework for Pension Funds

Can SRI be a means to make investors both virtuous and prosperous? This paper argues that there can be significant tensions between these goals, and that SRI (and indeed all investment) should not allow the pursuit of maximizing investment returns to prevail over an ethical agenda of promoting social and economic justice and environmental protection. The discourse on SRI has changed dramatically in recent years to the point where its capacity to promote social emancipation, sustainable development and other ethical goals is in jeopardy. Historically, SRI was a boutique sector of the market dominated by religious-based investors who sought to invest in accordance with the tenets of their faith. From the early 1970s, the aspirations of the SRI movement morphed significantly in the context of the divestment campaign against South Africa’s apartheid regime. No longer were social investors satisfied with just avoiding profit from immoral activities; instead, they also sought to change the behavior of others. Business case SRI is a problematic SRI benchmark for several reasons: often there is a countervailing business case for financing irresponsible activities, given the failure of markets to capture all social and environmental externalities; secondly, even if investors care about such concerns, there may be no means of financially quantifying their significance for investment purposes; and, thirdly, even if such factors can be financially quantified, they may be deemed to be such long-term financial costs or benefits that they become discounted and ignored. The ethics case for SRI and ethical business practices more generally takes the view that both investors and the companies they fund have ethical responsibilities that trump the pursuit of profit maximization. Ethical investment should be grounded on this foundation. However, it may not be enough. To keep ethical investment ethical will likely require institutionalizing new norms and governance standards, in such domains as reforming fiduciary duties and the internal governance of financial organizations. SRI’s own codes of conduct including the UNPRI have yet to demonstrate the robustness to move the financial community beyond business as usual.

https://digitalcommons.osgoode.yorku.ca/cgi/viewcontent.cgi?article=1139&context=all_papers

Being Virtuous and Prosperous: SRI’s Conflicting Goals

This article examines whether socially responsible investing (SRI) may be legally permissible if it fulfils the will of the beneficiaries in a fiduciary relationship, and considers potential legal reforms to give better effect to the interests of beneficiaries. It thus examines a relatively neglected aspect of fiduciary finance, which so far has focused on whether SRI is ‘financially material’ to investment performance. It argues that by reframing fiduciary finance as an active relationship rather than merely the mechanical application of legal duties, we may allow trustees to invest socially pursuant to the wishes of beneficiaries. However, this article also suggests that considerable legal and practical obstacles confront this path to SRI. They include the trustees' duty to treat different beneficiaries even-handedly and the traditionally passive role that trust law has cast beneficiaries. Reliance on widely held social customs and evaluation of third parties' interests as a proxy for the will of benefi...

From fiduciary duties to fiduciary relationships for socially responsible investing: responding to the will of beneficiaries

In an era of globally available information, members of the public cannot help but be aware of the impact of different industries, and within them individual enterprises, upon their workforce, consumers and the environment. Those with money to invest in are increasingly conscious of how the selections they make when purchasing shares may have wide-reaching effects. Quite naturally, many are concerned to try to make responsible investment choices; the ethical investment industry has itself become a multi-million pound business.

https://www.cambridge.org/core/services/aop-cambridge-core/content/view/S000819730800038X

Ethical investments: a case of disjointed thinking

https://www.cambridge.org/core/services/aop-cambridge-core/content/view/S000819730001672X

Multiple Keyholders—Wardship and Consent to Medical Treatment

(1989). Homelessness through relationship breakdown: The local authorities' response. The Journal of Social Welfare Law: Vol. 11, No. 2, pp. 67-84.

Homelessness through relationship breakdown: The local authorities' response

The enforceability of the convenants in a lease after an assignment, whether by the landlord or the tenant or both, is a matter of considerable practical importance. In the case of long leases, assignments of the leasehold estate and of the reversion are a common occurrence; both will often change hands many times before the end of the term, creating a welter of potential parties to any action on the covenants. In addition, there may be sureties who have undertaken to guarantee performance of the tenant's covenants. The basic principles governing the parties' rights and liabilities in this field under the present law are well known, centring upon privity of contract, privity of estate and upon statutory rules found in ss 141 and 142 of the Law of Property Act 1925. The area is one of vital commercial significance to landlords, and which potentially affects the residential security and amenity enjoyed by tenants (in the case, for example, of landlords' covenants to renew or to repair). It is also a field in which many of the issues and concepts have been the subject of judicial and academic consideration for more than a century, yet a surprising number of uncertainties remain. The law consists of a complex set of rules, which together form something resembling an intellectual jigsaw puzzle, and one from which several pieces are still missing. The aim of the first part of this article is to highlight some of these gaps.

Enforceability of leasehold covenants: more questions than answers

The European Court of Human Rights recently confirmed that the exceptionless prohibition of assisted suicide under section 2(1) of the Suicide Act 1961, which had been unsuccessfully challenged by the applicant in the House of Lords because of its effects on persons physically unable to commit suicide unassisted by another (R. (Pretty) v. DPP, [2001] UKHL 61, [2001] 3 W.L.R. 1598, noted by Keown (2002) 61 C.L.J. 8), is compatible with the United Kingdom’s obligations towards the applicant under the European Convention on Human Rights: Pretty v. United Kingdom, judgment of 29 April 2002. As she had before the House of Lords, Mrs. Pretty put forward arguments under Articles 2, 3, 8, 9 and 14 of the Convention. Important differences between the decisions of the European Court of Human Rights and the House of Lords emerged only in the assessment of the merits of Mrs. Pretty’s case with regard to Article 8 and Article 14.

Rosy Thornton

Papers

Ethical investments: a case of disjointed thinking

Multiple Keyholders—Wardship and Consent to Medical Treatment

Homelessness through relationship breakdown: The local authorities' response

Enforceability of leasehold covenants: more questions than answers

Assisted Suicide and Personal Autonomy