Does Socially Responsible Investing Change Firm Behavior?

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: 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