Does Socially Responsible Investing Change Firm Behavior?
64 Pages Posted: 5 May 2021 Last revised: 17 May 2021
Date Written: May 1, 2021
Socially responsible investment (SRI) funds are increasing in popularity. Yet, it is unclear if these funds improve corporate behavior. Using novel micro-level data, we find that SRI funds select firms with higher environmental and social standards: the firms they hold exhibit lower pollution, greater board diversity, higher employee satisfaction, higher workplace safety, and fewer customer complaints. Yet, using an exogenous shock to SRI capital, we find no evidence that SRI funds improve firm behavior. The results suggest SRI funds invest in a portfolio consistent with the fund's objective, but they do not significantly improve corporate conduct.
Keywords: Environmental, Social, and Governance (ESG), Institutional Investing, Socially Responsible Investing (SRI), Sustainability
JEL Classification: G12, G14
Suggested Citation: Suggested Citation