Socially Responsible Investment and Modern Financial Markets
USC Law Center Working Paper No. 94-13
Posted: 14 Sep 1999
Socially responsible investment (SRI), the practice of making investment decisions using both social and financial criteria, became very popular in the 1980's. Between 1984 and 1991, the amount of money invested using social criteria skyrocketed from $40 billion to more than $625 billion. This tremendous growth reflects the success of the SRI community in convincing investors that they can make a difference in the world through their investments without financial sacrifice. The proponents of SRI, thus, make two principal claims. First, that managing money according to ethical criteria can be as profitable and prudent as investing strictly for financial gain. Second, that SRI can directly change corporate behavior by drawing funds away from disapproved activities toward approved activities. Although either of the principal claims made by SRI's proponents might be true, the two claims cannot simultaneously both be true. Because the truth of either claim implies the falsity of the other, the two claims are inconsistent.
JEL Classification: G14, K22
Suggested Citation: Suggested Citation