Does Socially Responsible Investing Change Firm Behavior?

74 Pages Posted: 5 May 2021 Last revised: 18 Mar 2024

See all articles by Davidson Heath

Davidson Heath

University of Utah - David Eccles School of Business

Daniele Macciocchi

University of Miami Herbert Business School

Roni Michaely

The University of Hong Kong; ECGI

Matthew C. Ringgenberg

University of Utah - Department of Finance

Date Written: January 18, 2023

Abstract

Using micro-level data, we examine the behavior of socially responsible investment (SRI) funds. SRI funds select firms with lower pollution, more board diversity, higher employee satisfaction, and better workplace safety. Yet both in the cross-section and using an exogenous shock to SRI capital, we find SRI funds do not significantly change firm behavior. Moreover, we find little evidence they try to impact firm behavior using shareholder proposals. Our results suggest SRI funds are not greenwashing, but they are impact washing; they invest in a portfolio of firms with better environmental and social conduct, but do not follow through on their promise of impact.

Keywords: Corporate Social Responsibility (CSR), Environmental, Social, and Governance (ESG), Institutional Investors, Socially Responsible Investing (SRI)

JEL Classification: G12, G14

Suggested Citation

Heath, Davidson and Macciocchi, Daniele and Michaely, Roni and Ringgenberg, Matthew C., Does Socially Responsible Investing Change Firm Behavior? (January 18, 2023). Review of Finance - Forthcoming European Corporate Governance Institute – Finance Working Paper No. 762/2021, University of Miami Business School Research Paper No. 3837706, Available at SSRN: https://ssrn.com/abstract=3837706 or http://dx.doi.org/10.2139/ssrn.3837706

Davidson Heath

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Daniele Macciocchi

University of Miami Herbert Business School ( email )

P.O. Box 248126
Florida
Coral Gables, FL 33124
United States

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Matthew C. Ringgenberg (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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