Investor Behavior: The Psychology of Financial Planning and Investing

CHAPTER 28

Ethical and Socially Responsible Investing

Julia M. Puaschunder

Associate, Harvard University Faculty of Arts and Sciences, Center for the Environment

INTRODUCTION

The 2008−2009 world financial crisis climaxed the societal demand for imbuing social responsibility in economic markets. Financial social responsibility (FSR) bridges the financial world with society in socially responsible investment (SRI), in which socially conscientious investors select securities foremost for social, environmental, and institutional ethicality aspects (Mohr, Webb, and Harris 2001; Beltratti 2003; Williams 2005). In the international arena, various SRI practices emerged concurrently. This chapter captures the nature, history, international practice, and future perspectives of FSR. Outlining international SRI customs and examining potential socio-psychological motives of financial social investors helps to draw conclusions about the future potential of SRI to avert emergent risks and imbue trust in the global economy in the aftermath of the world financial crisis. FSR can serve as a way to help prevent future economic downfalls and contribute to financial social global governance.

The remainder of the chapter is organized as follows. The next section covers SRI forms and investor motives of socially conscientious asset allocations followed by an outline of the history of FSR and performance correlates of SRI. The chapter then summarizes international differences of FSR as well as the institutional ...