Socially responsible investing: a review of the critical issues

Abstract

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.

Citation

Junkus, J. and Berry, T.D. (2015), "Socially responsible investing: a review of the critical issues", Managerial Finance, Vol. 41 No. 11, pp. 1176-1201. https://doi.org/10.1108/MF-12-2014-0307