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Journal ArticleDOI

Perspectives in ESG equity investing

TL;DR: In this article, the authors synthesize recent academic results and models on socially responsible investing (SRI) in equity markets and split their review into six thematic parts: data issues, investor preferences, link with financial performance, portfolio integration, climate change risk, and theoretical models.
Abstract: The research on sustainable finance has intensified in the past decade. In this survey, we synthesize recent academic results and models on socially responsible investing (SRI) in equity markets. We split our review into six thematic parts: data issues, investor preferences, link with financial performance, portfolio integration, climate change risk, and theoretical models.
Citations
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OtherDOI
01 Jan 2018
TL;DR: In this paper, the authors investigate the relationship between financial and social performance in SRI mutual funds and find a curvilinear relationship, suggesting that two long-competing viewpoints may be complementary.
Abstract: A central and contentious debate in many literatures concerns the relationship between financial and social performance. We advance this debate by measuring the financial-social performance link within mutual funds that practice socially responsible investing (SRI). SRI fund managers have an array of social screening strategies from which to choose. Prior studies have not addressed this heterogeneity within SRI funds. Combining modern portfolio and stakeholder theories, we hypothesize that the financial loss borne by an SRI fund due to poor diversification is offset as social screening intensifies because better managed and more stable firms are selected into its portfolio. We find support for this hypothesis through an empirical test on a panel of 61 SRI funds from 1972-2000. The results show that as the number of social screens used by an SRI fund increases, financial returns decline at first, but then rebound as the number of screens reaches a maximum. That is, we find a curvilinear relationship, suggesting that two long-competing viewpoints may be complementary. Furthermore, we find that financial performance varies with the types of social screens used. Community relations screening increased financial performance, but environmental and labor relations screening decreased financial performance. Based on our results, we suggest that literatures addressing the link between financial and social performance move toward in-depth examination of the merits of different social screening strategies, and away from the continuing debate on the financial merits of either being socially responsible or not.

456 citations

Posted Content
01 Jan 2014
TL;DR: In this paper, the authors find that there is a surprising lack of agreement across social ratings from six well-established raters, even when they adjust for explicit differences in the definition of CSR held by different raters.
Abstract: Raters of firms play an important role in assessing domains ranging from sustainability to corporate governance to best places to work. Managers, investors, and scholars increasingly rely on these ratings to make strategic decisions, invest trillions of dollars in capital and study corporate social responsibility (CSR), guided by the implicit assumption that the ratings are valid. The authors document the surprising lack of agreement across social ratings from six well-established raters. These differences remain even when we adjust for explicit differences in the definition of CSR held by different raters, implying the ratings have low validity. The authors' results suggest that users of social ratings should exercise caution in interpreting their connection to actual CSR and that raters should conduct regular evaluations of their ratings.

133 citations

Posted Content
TL;DR: In this paper, the authors link administrative data to survey responses and behavior in incentivized experiments to understand why investors hold socially responsible mutual funds, and find that both social preferences and social signaling explain socially responsible investment (SRI) decisions.
Abstract: To understand why investors hold socially responsible mutual funds, we link administrative data to survey responses and behavior in incentivized experiments. We find that both social preferences and social signaling explain socially responsible investment (SRI) decisions. Financial motives play less of a role. Socially responsible investors in our sample expect to earn lower returns on SRI funds than on conventional funds and pay higher management fees. This suggests that investors are willing to forgo financial performance in order to invest in accordance with their social preferences.

123 citations

Posted Content
04 Jun 2002
TL;DR: In this paper, the authors present and illustrate using real-life data a framework for managing an investment portfolio in which the investment opportunities are described in terms of a set of attributes and part of this set is intended to capture the effects on society.
Abstract: textIn this paper we present and illustrate using real-life data a framework for managing an investment portfolio in which the investment opportunities are described in terms of a set of attributes and part of this set is intended to capture the effects on society. Here we link with the emerging literature on SRI: Socially Responsible Investment. Given the multifarious descriptions of the individual investment opportunities we show how these can be combined into portfolios with the same attributes at the portfolio level. Also we show how a manager can systematically be supported in the choice between different portfolio profiles. As part of the framework we use multi-criteria decision tools.

108 citations

References
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Book
Nicholas Stern1
15 Jan 2007
TL;DR: The Stern Review as discussed by the authors is an independent, rigourous and comprehensive analysis of the economic aspects of this crucial issue, conducted by Sir Nicholas Stern, Head of the UK Government Economic Service, and a former Chief Economist of the World Bank.
Abstract: There is now clear scientific evidence that emissions from economic activity, particularly the burning of fossil fuels for energy, are causing changes to the Earth´s climate. A sound understanding of the economics of climate change is needed in order to underpin an effective global response to this challenge. The Stern Review is an independent, rigourous and comprehensive analysis of the economic aspects of this crucial issue. It has been conducted by Sir Nicholas Stern, Head of the UK Government Economic Service, and a former Chief Economist of the World Bank. The Economics of Climate Change will be invaluable for all students of the economics and policy implications of climate change, and economists, scientists and policy makers involved in all aspects of climate change.

10,097 citations


"Perspectives in ESG equity investin..." refers background in this paper

  • ...Two important references are the book by Stern and Stern (2007) (see Stern (2008) for a short version) and the survey Pindyck (2013)....

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Book ChapterDOI
01 Jan 2007
TL;DR: When I hear businessmen speak eloquently about the social responsibilities of business in a free-enterprise system, I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life as mentioned in this paper.
Abstract: When I hear businessmen speak eloquently about the “social responsibilities of business in a free-enterprise system”, I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are — or would be if they or anyone else took them seriously -preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.

9,875 citations


"Perspectives in ESG equity investin..." refers background in this paper

  • ...…that “The Social Responsibility of Business is to Increase Its Profits” (which is the title of a short article in the New York Times magazine - see Friedman (1970)).2 The arguments in the paper are subject to interpretation (see Hart and Zingales (2017)) and must be contextualized (Austin…...

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Journal ArticleDOI
TL;DR: In this article, the authors argue that the trade-off between environmental regulation and competitiveness unnecessarily raises costs and slows down environmental progress, and that instead of simply adding to cost, properly crafted environmental standards can trigger innovation offsets, allowing companies to improve their resource productivity.
Abstract: Accepting a fixed trade-off between environmental regulation and competitiveness unnecessarily raises costs and slows down environmental progress. Studies finding high environmental compliance costs have traditionally focused on static cost impacts, ignoring any offsetting productivity benefits from innovation. They typically overestimated compliance costs, neglected innovation offsets, and disregarded the affected industry's initial competitiveness. Rather than simply adding to cost, properly crafted environmental standards can trigger innovation offsets, allowing companies to improve their resource productivity. Shifting the debate from pollution control to pollution prevention was a step forward. It is now necessary to make the next step and focus on resource productivity.

8,154 citations

Journal ArticleDOI
TL;DR: This article conducted a meta-analysis of 52 studies and found that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off, although the operationalizations of CSP and CFP also moderate the positive association.
Abstract: Most theorizing on the relationship between corporate social/environmental performance (CSP) and corporate financial performance (CFP) assumes that the current evidence is too fractured or too variable to draw any generalizable conclusions. With this integrative, quantitative study, we intend to show that the mainstream claim that we have little generalizable knowledge about CSP and CFP is built on shaky grounds. Providing a methodologically more rigorous review than previous efforts, we conduct a meta-analysis of 52 studies (which represent the population of prior quantitative inquiry) yielding a total sample size of 33,878 observations. The meta-analytic findings suggest that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off, although the operationalizations of CSP and CFP also moderate the positive association. For example, CSP appears to be more highly correlated with accounting-based measures of CFP than with market-based ...

6,493 citations


"Perspectives in ESG equity investin..." refers background in this paper

  • ...- Orlitzky et al. (2003) find that, overall, CSP is positively correlated with CFP. - Margolis et al. (2009) also document a positive effect, albeit a small one....

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Journal ArticleDOI
TL;DR: In this article, the authors report the results of a rigorous study of the empirical linkages between financial and social performance, finding that corporate social performance (CSP) is positively associated with prior financial performance, supporting the theory that slack resource availability and CSP are positively related.
Abstract: Strategic managers are consistently faced with the decision of how to allocate scarce corporate resources in an environment that is placing more and more pressures on them. Recent scholarship in strategic management suggests that many of these pressures come directly from sources associated with social issues in management, rather than traditional arenas of strategic management. Using a greatly improved source of data on corporate social performance, this paper reports the results of a rigorous study of the empirical linkages between financial and social performance. Corporate social performance (CSP) is found to be positively associated with prior financial performance, supporting the theory that slack resource availability and CSP are positively related. CSP is also found to be positively associated with future financial performance, supporting the theory that good management and CSP are positively related.? 1997 by John Wiley & Sons, Ltd

5,922 citations

Trending Questions (1)
What research have scholars conducted on ESG from the perspectives of countries, regions, and governments?

The paper does not specifically mention research on ESG from the perspectives of countries, regions, and governments.