Ethical Finance: Trends and Emerging Issues for Research

Abstract

The objective of this paper is to understand the manner in which research in ethical finance has evolved and development of literature in the field of ethical/socially responsible investing has taken place, which would provide us directions for future research work in the area. Contributions of 108 research studies published in the area of ethical finance, over a time span of 15 years were analyzed using a framework that classified research in the area of ethical finance according to research agenda and data analysis framework. This points to the areas which lack in–depth research and are worthy of being explored in future research.

The literature review reveals that research in ethical finance or socially responsible investment has been concentrated in a few areas. While some important areas like financial performance of ethical funds and indices have received adequate attention by researchers, there are several other areas which need focused research.

Measurement of ESG performance, ESG criteria for selection of stocks for an ESG/ethical investment portfolio, process of integration of ESG criteria into investment decision making and regulatory mechanisms that need to be evolved to promote adoption of ethical finance are some of the areas worthy of being explored in future research. The study also suggests that models using multi–decision criteria for portfolio selection could greatly improve the performance of an ethical portfolio.

Keywords: Ethical Finance, Socially Responsible Investing, Literature Review, Ethical Funds, Indices

JEL Classification: G11, G23, G34, M14