From Wikipedia, the free encyclopedia
Socially responsible investing (SRI), social investment, sustainable socially conscious, "green" or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about social change regarded as positive by proponents. Socially responsible investments often constitute a small percentage of
total funds invested by corporations and are riddled with obstacles.
Recently, it has also become known as "sustainable investing" or "responsible investing". There is also a subset of SRI known as "impact investing", devoted to the conscious creation of social impact through investment.
In general, socially responsible investors encourage corporate practices that they believe promote environmental stewardship, consumer protection, human rights, and racial or gender diversity. Some SRIs avoid investing in businesses perceived to have negative social effects such as alcohol, tobacco, fast food, gambling, pornography, weapons, fossil fuel production or the military. The areas of concern recognized by the SRI practitioners are sometimes summarized under the heading of ESG issues: environment, social justice, and corporate governance.
Socially responsible investing is one of several related concepts
and approaches that influence and, in some cases, govern how asset
managers invest portfolios.
The term "socially responsible investing" sometimes narrowly refers to
practices that seek to avoid harm by screening companies for ESG risks
before deciding whether or not they should be included in an investment
portfolio. However, the term is also used more broadly to include more proactive practices such as impact investing, shareholder advocacy and community investing. According to investor Amy Domini,
shareholder advocacy and community investing are pillars of socially
responsible investing, while doing only negative screening is
inadequate.
Some rating companies focus specifically on ESG risk ratings as they can be a "valuable tool for asset managers".
These ratings firms evaluate companies and projects on several risk
factors and typically assign an aggregate score to each company or
project being rated. The firms publish reports of their ESG risk
findings.
History
The origins of socially responsible investing may date back to the Religious Society of Friends (Quakers). In 1758, the Quaker Philadelphia Yearly Meeting prohibited members from participating in the slave trade – buying or selling humans.
One of the most articulate early adopters of SRI was John Wesley (1703–1791), one of the founders of Methodism. Wesley's sermon
"The Use of Money" outlined his basic tenets of social investing – i.e.
not to harm your neighbor through your business practices and to avoid
industries like tanning and chemical production, which can harm the health of workers.
Some of the best-known applications of socially responsible investing
were religiously motivated. Investors would avoid "sinful" companies,
such as those associated with products such as guns, liquor, and tobacco.
The modern era of socially responsible investing evolved during
the political climate of the 1960s. During this time, socially concerned
investors increasingly sought to address equality for women, civil rights, and labor issues. Economic development projects started or managed by Dr. Martin Luther King, like the Montgomery bus boycott and the Operation Breadbasket
Project in Chicago, established the beginning model for socially
responsible investing efforts. King combined ongoing dialog with
boycotts and direct action targeting specific corporations. Concerns
about the Vietnam War were incorporated by some social investors. Many people living during the era remember a picture in June 1972 of a naked nine-year-old girl, Phan Thị Kim Phúc, running towards a photographer screaming, her back burning from the napalm dropped on her village. That photograph channeled outrage against Dow Chemical,
the manufacturer of napalm, and prompted protests across the country
against Dow Chemical and other companies profiting from the Vietnam War.
During the 1950s and 1960s, trade unions deployed multi-employer pension fund monies for targeted investments. For example, the United Mine Workers fund invested in medical facilities, and the International Ladies' Garment Workers' Union (ILGWU) and International Brotherhood of Electrical Workers (IBEW) financed union-built housing projects. Labor unions also sought to leverage pension stocks for shareholder activism on proxy fights and shareholder resolutions. In 1978, SRI efforts by pension funds was spurred by The North will Rise Again: Pensions, Politics, and Power in the 1980s and the subsequent organizing efforts of authors Jeremy Rifkin and Randy Barber. By 1980, presidential candidates Jimmy Carter, Ronald Reagan and Jerry Brown advocated some type of social orientation for pension investments.
SRI had an important role in ending the apartheid government in South Africa. International opposition to apartheid strengthened after the 1960 Sharpeville massacre. In 1971, Reverend Leon Sullivan (at the time a board member for General Motors) drafted a code of conduct for practicing business in South Africa which became known as the Sullivan Principles.
However, reports documenting the application of the Sullivan Principles
said that US companies were not trying to lessen discrimination in
South Africa. Due to these reports and mounting political pressure,
cities, states, colleges, faith-based groups and pension funds
throughout the US began divesting from companies operating in South
Africa. In 1976, the United Nations imposed a mandatory arms embargo
against South Africa. From the 1970s to the early 1990s, large
institutions avoided investment in South Africa under apartheid. The
subsequent negative flow of investment eventually forced a group of
businesses, representing 75% of South African employers, to draft a
charter calling for an end to apartheid. While the SRI efforts alone did
not bring an end to apartheid, it did focus persuasive international
pressure on the South African business community.
The mid and late 1990s saw the rise of SRI's focus on a diverse
range of other issues, including tobacco stocks, mutual fund proxy
disclosure, and other diverse focuses.
Since the late 1990s, SRI has become increasingly defined as a means to promote environmentally sustainable development. Many investors consider effects of global climate change a significant business and investment risk. CERES
was founded in 1989 by Joan Bavaria and Dennis Hayes, coordinator of
the first Earth Day, as a network for investors, environmental
organizations, and other public interest groups interested in working
with companies to address environmental concerns.
In 1989, representatives from the SRI industry gathered at the first SRI in the Rockies Conference
to exchange ideas and gain momentum for new initiatives. The name has
since changed to The SRI Conference which meets annually at Green
Building certified establishments and has attracted over 550 persons
annually since 2006.
This conference is produced by First Affirmative Financial Network, an
investment advisory firm that works with advisors nationwide providing
portfolios specialized in sustainable and responsible investing.
The first sell-side brokerage in the world to offer SRI research was the Brazilian bank Unibanco. The service was launched in January 2001 by Unibanco SRI analyst Christopher Wells from the São Paulo
headquarters of the bank. It was targeted at SRI funds in Europe and
the US, although it was sent to non-SRI funds both in and out of Brazil.
The research was about environmental and social issues (but not
governance issues) regarding companies listed in Brazil. It was sent
for free to Unibanco's clients. The service lasted until mid-2002.
Drawing on the industry's experience using divestment as a tool
against apartheid, the Sudan Divestment Task Force was established in
2006 in response to the genocide occurring in the Darfur region of the Sudan. Support from the US government followed with the Sudan Accountability and Divestment Act of 2007.
More recently, some social investors have sought to address the
rights of indigenous peoples around the world who are affected by the
business practices of various companies. The 2007, SRI in the Rockies Conference
held a special pre-conference specifically to address the concerns of
indigenous peoples. Healthy working conditions, fair wages, product
safety, and equal opportunity employment also remain headline concerns for many social investors. In the mid-2010s, some funds developed gender lens investing strategies to promote workplace equity and general welfare of women and girls.
Current strategies
Socially
responsible investing is a growing market in both the US and Europe. In
particular, it has become an important principle guiding the investment
strategies of various funds and accounts.
Government-controlled funds
Government-controlled funds such as pension funds
are often very large players in the investment field, and are being
pressured by the citizenry and by activist groups to adopt investment
policies which encourage ethical corporate behavior, respect the rights
of workers, consider environmental concerns, and avoid violations of
human rights. One outstanding endorsement of such policies is The Government Pension Fund of Norway,
which is mandated to avoid "investments which constitute an
unacceptable risk that the Fund may contribute to unethical acts or
omissions, such as violations of fundamental humanitarian principles,
serious violations of human rights, gross corruption or severe
environmental damages".
In the 2000s and 2010s, pension funds were under pressure to disinvest from the arms company BAE Systems, partially due to a campaign run by the Campaign Against Arms Trade (CAAT). Liverpool City Council has passed a successful resolution to disinvest from the company, but a similar attempt by the Scottish Green Party in Edinburgh City Council was blocked by the Liberal Democrats.
Mutual funds and ETFs
Socially
responsible mutual funds counted by the 2014 Trends Report increased in
number to 415 in 2014, up from 333 in 2012, 250 in 2010, 173 in 2005
& 2007, 189 in 2003, and 167 in 2001. The overall number of mutual
funds incorporating environmental, social and corporate governance
(ESG) has increased four-fold since 2012. Additionally, 20
exchange-traded funds (ETFs) that incorporate ESG criteria were
identified with $3.5 billion in assets at the end of 2011, an increase
from the 8 ETFs with $2.25 billion in net assets identified in its 2007
report—the first Trends report to track ETFs [11]. Unlike the Employee
Retirement Income Security Act of 1974 (ERISA), which severely limits
the extent to which socially responsible goals can be considered in
managing corporate and Taft-Hartley pension assets (due to ERISA's
overriding goal of protecting employees' pensions),
registered investment companies can take these factors into account so
long as the disclosure and other requirements of the Investment Company
Act of 1940 are met. US SIF maintains charts describing the socially responsible mutual funds offered by its member firms.
Separately managed accounts
According
to the 2014 Report on US Sustainable, Responsible and Impact Investing
Trends, among separate account managers, 214 distinctive separate
account vehicles or strategies, with $433 billion in assets,
incorporated ESG factors into investment analysis. Where a separate
account is subject to ERISA, there are legal limitations on the extent
to which investment decisions can be based on factors other than
maximizing plan participants' economic returns.
Shareholder advocacy
Shareholder resolutions are filed by a wide variety of institutional investors, including public pension funds, faith-based investors,
socially responsible mutual funds, and labor unions. In 2004,
faith-based organizations filed 129 resolutions, while socially
responsible funds filed 56 resolutions.
Regulations governing shareholder resolutions vary from country to country. In the United States, they are determined primarily by the Securities and Exchange Commission, which regulates mutual funds and applies the 1940 Act and by the Department of Labor, which regulates certain plans and applies ERISA.
These regulatory regimes require pension plans and mutual funds to disclose how they voted on behalf of their investors. U.S. shareholders have organized various groups to facilitate jointly filing resolutions. These include the Council of Institutional Investors, the Interfaith Center on Corporate Responsibility, and the US SIF.
From 2012 to 2014, more than 200 US institutions and investment
management firms filed or co-filed proposals. These institutions and
money managers collectively controlled $1.72 trillion in assets at the
end of 2013. The top categories of environmental and social issues from
2012 to 2014 were political contributions and climate change and
environmental issues.
Community
investing, a subset of socially responsible investing, allows for
investment directly into community-based organizations. Community
investing institutions use investor capital to finance or guarantee
loans to individuals and organizations that have historically been
denied access to capital by traditional financial institutions. These
loans are used for housing, small business creation, and education or
personal development in the US and UK,
or are made available to local financial institutions abroad to finance
international community development. The community investing
institution typically provides training and other types of support and
expertise to ensure the success of the loan and its returns for
investors.
Community investing grew almost 5% from 2012 to 2014. Assets held and invested locally by community development financial institutions (CDFIs) based in the US totaled $64.3 billion at the start of 2014, up from $61.4 billion in 2012.
Investing strategies
Investing in capital markets
Social
investors use several strategies to maximize financial return and
attempt to maximize social good. These strategies seek to create change
by shifting the cost of capital down for sustainable firms and up for
the non-sustainable ones. The proponents argue that access to capital
is what drives the future direction of development. A growing number of
rating agencies collects both raw data the ESG behaviour of firms as
well as aggregates this data in indices.
After several years of growth the rating agency industry has recently
been subject to a consolidation phase that has reduced the number of
genesis through mergers and acquisitions.
ESG integration
ESG integration is one of the most common responsible investment strategies and entails the incorporation of environmental, social and governance
("ESG") criteria into the fundamental analysis of equity investments.
According to the non-profit Investor Responsibility Research Center
institute (IRRCi), approaches to ESG integration vary greatly among
asset managers depending on:
- Management: Who is responsible for ESG integration within the organization?
- Research: What ESG criteria and factors are being considered in the analysis?
- Application: How are the ESG criteria being applied in practice?
Negative screening
Negative screening
excludes certain securities from investment consideration based on
social or environmental criteria. For example, many socially responsible
investors screen out tobacco company investments.
The longest-running SRI index, the Domini 400—now the MSCI KLD 400—was
started in May 1990. It has continued to perform competitively —with
average annualized total returns of 9.51% through December 2009 compared
with 8.66% for the S&P 500.
Despite this impressive growth, it has long been commonly
perceived that SRI brings smaller returns than unrestricted investing.
So-called "sin stocks", including purveyors of tobacco, alcohol,
gambling and defense contractors, were banned from portfolios on moral
or ethical grounds. And shutting out entire industries hurts
performance, the critics said. However, in a comprehensive study, financial economists Lobe, Roithmeier, and Walkshäusl taking the position of the advocatus diaboli,
answer the question whether to invest in a socially responsible way –
or not? They create a set of global and domestic sin indexes consisting
of 755 publicly traded socially irresponsible stocks around the world
belonging to the Sextet of Sin: adult entertainment, alcohol, gambling,
nuclear power, tobacco, and weapons. They compare their stock market
performance directly with a set of virtue comparables consisting of the
most important international socially responsible investment indexes.
They find no compelling evidence that ethical and unethical screens lead
to a significant difference in their financial performance, which is in
contrast with the results of prior studies on sinful investing.
Divestment
Divesting
is the act of removing stocks from a portfolio based on mainly ethical,
non-financial objections to certain business activities of a
corporation. Recently, CalSTRS (California State Teachers' Retirement
System) announced the removal of more than $237 million in tobacco
holdings from its investment portfolio after six months of financial
analysis and deliberations.
Shareholder activism
Shareholder activism efforts attempt to positively influence corporate behavior.
These efforts include initiating conversations with corporate
management on issues of concern, and submitting and voting proxy
resolutions. These activities are undertaken with the belief that social
investors, working cooperatively, can steer management on a course that
will improve financial performance over time and enhance the well being
of the stockholders, customers, employees, vendors, and communities.
Recent movements have also been reported of "investor relations
activism", in which investor relations firms assist groups of
shareholder activists in an organized push for change within a
corporation. This is done typically by leveraging their enhanced
knowledge of the corporation, its management (often via direct
relationships), and the securities laws as a whole.
Hedge funds are also major activist investors; while some pursue
socially responsible investing goals, many simply are seeking to
maximize fund returns.
Pension plans subject to ERISA are somewhat more constrained in their
ability to engage in shareholder activism or the use of plan assets to
promote public policy positions; any expenditure of plan assets must be
aimed at enhancing participants' retirement income.
Shareholder engagement
A less vocal subtype of shareholder activism,
shareholder engagement requires extensive monitoring of the
non-financial performance of all portfolio companies. In shareholder
engagement dialogues, investees receive constructive feedback on how to
improve ESG issues within their sphere of influence.
Positive investing
Positive investing is the new generation of socially responsible investing.
It involves making investments in activities and companies believed to
have a positive social impact. Positive investing suggested a broad
revamping of the industry's methodology for driving change through
investments. This investment approach allows investors to positively express their values on corporate behavior issues such as social justice and the environment through stock selection – without sacrificing portfolio diversification or long-term performance. Positive screening pushes the idea of sustainability, not just in the narrow environmental or humanitarian sense, but also in the sense of a company's long-term potential to compete and succeed. In 2015, Morgan Stanley
conducted a review of 10,000 funds and concluded "strong
sustainability" investments outperformed weak sustainability
investments, tackling the idea of a trade-off between positive impact and financial return.
while the Global Impact Investing Network's 2015 report on benchmarks
and returns in impact investing in private equity and venture capital
found market-rate or market-beating returns were common in impact
investments.
Impact investing
Impact investing
is the alternative investment (i.e. private equity) approach to
Positive investing. In 2014, the UK's presidency of the G8 created a
Social Impact Investment Task Force which produced a series of reports
that defined impact investing as "those that intentionally target
specific social objectives along with a financial return and measure the
achievement of both".
Impact investing, capitalizes businesses that potentially provide
social or environmental impact at a scale that purely philanthropic
interventions usually cannot reach.
This capital may be in a range of forms including private equity, debt,
working capital lines of credit, and loan guarantees. Examples in
recent decades include many investments in microfinance, community development finance, and clean technology. Impacting investing has its roots in the venture capital community, and an investor will often take active role mentoring or leading the growth of the company or start-up.
By investing directly
in an institution, rather than purchasing stock, an investor is able to
create a greater social impact: money spent purchasing stock in the
secondary market accrues to the stock's previous owner and may not
generate social good, while money invested in a community institution is
put to work. For example, money invested in a Community Development Financial Institution
may be used by that institution to alleviate poverty or inequality,
spread access to capital to under-served communities, support economic
development or green business, or create other social good. In 1984,
Trillium Asset Management's founder, Joan Bavaria, invited Chuck Matthei
of the Institute for Community Economics (ICE), an organization that
helps communities create and sustain land trusts, to a meeting of US SIF.
It is likely that this was the first time a nonprofit organization with
a loan fund would meet directly with SRI managers. Trillium clients
began investing in ICE later that year.
Global context
Socially
responsible investing is a global phenomenon. With the international
scope of business itself, social investors frequently invest in
companies with international operations. As international investment
products and opportunities have expanded, so have international SRI
products. The ranks of social investors are growing throughout developed
and developing countries. In 2006, the United Nations Environment Programme launched its Principles for Responsible Investment
which provide a framework for investors to incorporate environmental,
social, and governance (ESG) factors into the investment process. PRI
has more than 1,500 signatories managing more than US$60 trillion of
assets.
The Global Sustainable Investment Alliance (GSIA) is a collaboration of membership-based sustainable investment organisations around the world including the European Sustainable Investment Forum (Eurosif), UK Sustainable Investment and Finance Association (UKSIF), the Responsible Investment Association Australasia (RIAA), Responsible Investment Association (RIA Canada), the Forum for Sustainable and Responsible Investment (US SIF), Dutch Association of Investors for Sustainable Development (VBDO) and Japan Sustainable Investment Forum. The GSIA’s mission is to deepen the impact and visibility of sustainable investment organizations at the global level.
The Global Sustainable Investment Review 2018,
the fourth edition of this biennial report, continues to be the only
report collating results from the market studies of regional sustainable
investment forums from Europe, the United States, Japan, Canada, and
Australia and New Zealand. It provides a snapshot of sustainable
investing in these markets at the start of 2018 by drawing on the
in-depth regional and national reports from GSIA members: Eurosif, Japan
Sustainable Investment Forum (JSIF), Responsible Investment Association
Australasia, RIA Canada and US SIF. This report also includes data on
the African sustainable investing market, from the African Investing for
Impact Barometer, and on Latin America from the Principles for
Responsible Investment.
The 2018 report shows that globally, sustainable investing assets
in the five major markets stood at US$30.7 trillion at the start of
2018, a 34% increase in two years. From 2016 to 2018, the fastest
growing region has been Japan, followed by Australia/New Zealand and
Canada. These were also the three fastest growing regions in the
previous two-year period. The largest three regions— based on the value
of their sustainable investing assets—were Europe, the United States and
Japan.
An 2020 global analysis from Morningstar indicates that assets in sustainable funds reached nearly, $1.7 trillion. Net flows into U.S. sustainable funds surpassed $51 billion.
ESG ratings agencies
Asset
managers and other financial institutions increasingly rely on ESG
ratings agencies to assess, measure and compare companies' ESG
performance. Sustainsalytics, RepRisk are two examples of dedicated ESG ratings agencies, while global credit agencies like S&P Global are also seeing the value to adding ESG ratings to their data offerings.
Responsible, ethical and impact investing in Australia
According to the Responsible Investment Association Australasia's annual Responsible Investment Benchmark Report Australia 2020,
in 2019 and for a 19th consecutive year, funds managed under
responsible investment approaches grew as a proportion of total
professionally managed investments in Australia to AU$1,149 billion in
assets under management, a rise of 17% from 2018. Ever more investment
managers are applying a range of responsible investing approaches – from
ESG integration and negative screening to sustainability-themed and
impact investing.
The report shows that in Australian and multi-sector responsible
investment funds outperformed mainstream funds over 1, 3, 5 and 10 year
time horizons.
Australian responsible investment managers still favour ESG
integration and corporate engagement and voting above negative and
norms-based screening as their primary responsible investment approaches
for constructing portfolios, but managers are increasingly driving
capital towards sustainability-themed and impact investing allocations
with allocations to Green, Social and Sustainability Bonds more than
doubling since last year.
Negative screening of fossil fuels by the responsible investment
industry is beginning to catch up to consumer interest. In 2018, only 5%
of responsible investment AUM for survey respondents who conduct
negative screening was screened for fossil fuels. In 2019, 19% of
responsible investment AUM has been screened for fossil fuels, growing
14 percentage points from the year before. For consumers using RIAA's Responsible Returns
search and compare tool for ethical investments, the most important
exclusionary screens are fossil fuels, human rights abuses and
armaments.
Responsible, ethical and impact investing in New Zealand
The Responsible Investment Association Australasia's annual Responsible Investment Benchmark Report New Zealand 2020
details the size, growth, depth and performance of the New Zealand
responsible investment market over 12 months to 31 December 2019 and
compares these results with the broader New Zealand financial market. In
2019, funds managed under responsible investment approaches grew as a
proportion of total professionally managed investments in New Zealand to
NZ$153.5 billion in 2019. This represents 52% of the estimated NZ$296
billion of total professionally managed assets under management in New
Zealand.
Increasingly, responsible investors in New Zealand have shifted
their focus from screening out harmful industries such as tobacco and
armaments, to considering broader environmental, social and corporate
governance (ESG) factors when investing. Impact investing has grown over
13 times from NZ$358 million in 2018 to NZ$4.74 billion in 2019. Green,
Social and Sustainability (GSS) Bonds account for 88% of products using
this approach.
Ethical investment in the UK
In
1985, Friends Provident launched the first ethically screened
investment fund with criteria which excluded tobacco, arms, alcohol and
oppressive regimes.
Since 1985, over 90 investment funds have launched offering a wide
range of investment criteria; both negatively screened and with positive
investment criteria i.e. investing into companies involved in promoting
sustainability.
Since 1985, most of the major investment organizations have
launched ethical and socially responsible funds, although this has led
to a great deal of discussion and debate over the use of the term
"ethical" investment. This is because each of the fund management organizations tend to apply a slightly different approach to running their funds.
In recent years there has been growth in the market for high
social impact investments; this is a style of investing where the
businesses receiving investment have social or environmental goals as a
primary purpose.
UK institutions are also getting more involved in social investing through impact investing funds, with those such as Deutsche Bank and NESTA, alongside other institutions such as Big Issue Invest, which is part of The Big Issue group.
As of June 2014, EIRIS estimated that there was over £13.5
billion invested in Britain's green and ethical retail funds. This
estimate is based on around 85 UK domiciled green or ethical retail
funds and it seeks to not include UK money invested in ethical funds
domiciled outside of the UK.
In higher education
In 2007, the Dwight Hall organization at Yale University launched the first undergraduate-run socially responsible investment fund in the United States, known as the Dwight Hall Socially Responsible Investment Fund.
Comparison with conventional investing
While
conventional investing only focuses on the traditional risk and returns
considerations in making investment decisions, socially responsible
investing considers other ethical factors as discussed above. Hence, the
question often arise as to whether it pays financially to be ethical or
not in making investment decisions. The debate as to whether there is
anything to gain or lose by deciding to be ethical and socially
responsible in making investment decisions is still ongoing. Several
studies have found that there is no conclusive evidence as to whether
the performances of socially responsible investments outperform those of
conventional and vice versa.
Comparing portfolio and fund performance
Several
studies in various places have analysed the performance of socially
responsible investing (SRI) and conventional investing (CI) using
different models and methodologies for measuring performance. Using the Carhart four-factor model,
found that an approach where stocks with high SRI scores are bought
while those with low SRI scores are sold off produced a positive
abnormal performance of up to 8.7% per annum, suggesting that investors
can achieve their ethical goals without hurting their financial
performance. also using the Carhart four-factor model, noted an excess return of 7% for environmentally-friendly firms. However,
using a similar approach found the performance of SRI stocks to be not
statistically different from those of conventional stocks. In contrast, also using the Carhart four-factor model found a portfolio
which included "sin stocks" (alcohol, tobacco, gaming) to be
significantly outperforming similar comparable stocks, which indicates
that investors in SRI stocks might be losing. However, after controlling
for managerial skills, transaction costs and fees, found no outperformance between portfolios which include "sin" stocks and comparable SR portfolios.
Some other studies have compared the performance of SRI funds with conventional funds. While some studies used only the capital asset pricing model to compare performance), others used multifactor models such as the Fama–French three-factor model and Carhart four-factor model. These studies found no statistically significant difference in performance between the SRI and conventional funds.
Comparing stock market index performance
Considering
that difference in performance of funds may be due to portfolio
selection/construction process and/or the ability of fund managers and
not necessarily on the nature of investments themselves, some studies
have compared the performance of stock market indices instead. Two of the pioneer studies compared the performance of the Domini 400 Social Index with the S&P 500. The Sharpe ratio and the capital asset pricing model were used to estimate Jensen's alpha
for the comparison and no significant difference was found in the
performance of the two indices. A follow-up study compared the
performance of four SRI indices (Domini 400 Social Index, Calvert Social Index, Citizen's Index and Dow Jones Sustainability Indices US Index) with the S&P 500
index between 1990 and 2004 and found that returns on the SRI indices
exceeded returns on S&P 500 even though they were not statistically
significant. Others focused only on the US and on outside the US by studying the performance of 29 SRI indices globally.
Using the capital asset pricing model to estimate Jensen's alpha as the
performance indicator, no significant evidence of under/over
performance was found. A comparison of the performance of SR indices
with conventional indices on a global scale using marginal conditional stochastic dominance found there is "strong evidence that there is a financial price to be paid for socially responsible investing."
A more recent study showed that "improvements in CSR reputation enhance profits".
