SOCIAL RESPONSIBLE INVESTMENT

INSTITUATIONAL ASPECTS PERFORMANCE

AND INVESTOR BEHAVIOUR
By Luc Renneboog Jenke Ter Horst and Chendi Zhang.

PRESENTED BY KAMAL SAEED

ID 5719580
 Objective

Critical Review of SRI particular to both financial goals and social

objectives. Past decades SRI fund experienced explosive growth
around the world reflecting increasing awareness of investor to
social,enviourmental ethical and corporate governance issues.
Shareholder value impact on CSR Risk exposure and performance of
SRI funds and firms Emergence of SRI raises important question for
research on corporate finance asset pricing and financial
Intermediation.
 Socially responsible investment (SRI) also called ethical investment or
sustainable investment grew rapidly over past decade around the world.
SRI is an investment process that integrates social enviourmental and
ethical consideration into investment decision making, unlike conventional
investment types.
SRI apply set of investment screens to select or exclude assets based on
ecological social and corporate governance or ethical criteria.
Investor may have multiple attributes not only risk reward optimization but
also personal and societal values. Volatility of SRI is less than conventional
fund flow (Bollen 2007).
 CSR creates shareholder value in the long run although stock market undervalue CSR
in the short run.
History of Sri (Ethical investing) found early in ancient Jewish Christianity and Islam
community They imposed low interest or no interest on loans also avoided doing or
making profit from weapons and Sin stock such as alcohol and pork manufacturer.
Ancient ethical investing based on religious perspective modern SRI based on ethical
and moral and social conviction.
Since 1960 Social campaigns such as anti-war anti racist movement have made
investor aware of social consequences of their investment. SRI avoid investment in
weapon industry also racism movement also made firms to divest from South Africa
or policy of mutual fund not to invest firms that are active in south Africa .
 After series of big disaster by firms that affects enviourment significantly such as
Chernobyl Nuclear Power plant US oil tanker Exxon spilled over 11 millions gallons of
crude oil in Alaska which affect enviourment massively raised concern on investor of
their role in social activity and benefit by firms.
Since 1990 SIR has experienced strong growth in US Europe and rest of the world.
Important factor for this growth is ethical consumerism where consumers pay
premium for product that consist of their personal values
Issues like Enviourment protection human rights and labor relation have become
common in SRI investment screens. Currently series of corporate scandal also raise
concern over corporate governance and responsibility another focal point of SRI.
 Table 1shows (Asset under management )of SRI FUND across US, Europe, Canada and
Australia.
In US portfolio including retail investment and institutional investment (pension fund and
insurance fund) big names like CALPERS, Dutch pension fund and other countries fund have
attributed in SRI funds.(Avoid investment in weapon production, human rights violation).
10% AUM of US consist of SRI Fund and 10-15% AUM in Europe are SRI fund and rest of world
is increasing gradualy.
From 1995 to 2005 US mutual fund growth was 55 to 201 and Europe from 54 to 375 mutual
fund.
SRI increased attention due to global warming, Kyoto Protocol( The Kyoto Protocol is an
international treaty, which extends the 1992 United Nations Framework Convention on Climate Change
(UNFCCC) that commits State Parties to reduce greenhouse gases emissions, based on the premise that
(a) global warming exists and (b) man-made CO2 emissions have caused it.)
Emission trading and community investment microfinance around the world.
 Regulation to expose firms of its disclosure of social enviourment and ethical information of pension
fund and listed companies. Charitable organization The trustee act of 2000 to investment in social
development and ethical investing.
SRI Regulation ( Australia, Belgium, France, Germany, Italy Netherland, Sweden UK and US).has been
implemented some of the countries waives taxes on investment in eco friendly firms.
Investment screening in SRI FUNDS. Portfolio include and exclude that is listed in SRI screening.Filters
on negative screening. Positive screening based on superior CSR actives by firms.(Show table).
CSR increased SRI funding the fundamental concept of CSR
Corporate performance must be measurable, Maximizing long run firm value in consistent with
maximizing social welfare, Even if one adopts long run firm value criterion it is important to consider
the welfare of all stakeholders (employees and community. Economic theories predict companies
willing to sacrifice profitability in order to be socially responsible SRI portfolio manager pursue both
financial goals and social objective, multi task nature may lead the fund manager to underperform.
 Companies Implement CSR strategy
CSR is priced and investor willing to pay for it.
Enviourment screening.(lobbyist)
Corporate governance (positive relation with CSR and hence SRI fund).
Stake holder relation screening.
SRI performance (cannot beat the market, but fund manager may select
securities on risk adjusted basis).
SRI funds are more growth than value oriented.
SRI funds under perform at first than later outperform in long run than non SRI
FUNDS.
Conclusion

Government has taken steps to initiate SRI FUNDS. SRI experienced

rapid growth caused by increased awareness of investor in global
warming etc.Enviourmently consciousness.
CSR is associated with high shareholder value. SRI has important
implication for asset pricing Portfolio level shows SRI fund do not
underperform than NON SRI FUND.
Good corporate governance and sound enviourment performance
produces superior abnormal returns.
Recent studies Bank voluntary does SRI screening.
Future research to find impact of SRI in financial institution.