Socially Responsible Investments: Methodology, Risk Exposure and Performance

TILEC Discussion Paper No. 2007-013

ECGI - Finance Working Paper No. 175/2007

51 Pages Posted: 10 May 2007 Last revised: 2 Sep 2014

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Jenke ter Horst

TIAS School for Business and Society

Chendi Zhang

University of Warwick - Finance Group

Date Written: June 1, 2007

Abstract

This paper surveys the literature on socially responsible investments (SRI). Over the past decade, SRI has experienced an explosive growth around the world. Particular to the SRI funds is that both financial goals and social objectives are pursued. While corporate social responsibility (CSR) - defined as good corporate governance, sound environmental standards, and good management towards stakeholder relations - may create value for shareholders, participating in other social and ethical issues is likely to destroy shareholder value. Furthermore, the risk-adjusted returns of SRI funds in the US and UK are not significantly different from those of conventional funds, whereas SRI funds in Continental Europe and Asia-Pacific strongly underperform benchmark portfolios. Finally, the volatility of money-flows is lower in SRI funds than of conventional funds, and SRI investors' decisions to invest in an SRI fund are less affected by management fees than the decisions by conventional fund investors.

Keywords: socially responsible investments, ethical investing, corporate social responsibility, mutual funds, performance evaluation, money-flows, investment screens, mutual funds

JEL Classification: A13, G11, G12, G34

Suggested Citation

Renneboog, Luc and ter Horst, Jenke and Zhang, Chendi, Socially Responsible Investments: Methodology, Risk Exposure and Performance (June 1, 2007). TILEC Discussion Paper No. 2007-013; ECGI - Finance Working Paper No. 175/2007. Available at SSRN: https://ssrn.com/abstract=985267 or http://dx.doi.org/10.2139/ssrn.985267

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Jenke R. Ter Horst

TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

Chendi Zhang (Contact Author)

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

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