Socially Responsible Finance and Investing: Financial Institutions, Corporations, Investors, and Activists

CHAPTER 24

Money-Flows of Socially Responsible Investment Funds around the World

LUC RENNEBOOG

Professor of Corporate Finance, Tilburg University

JENKE TER HORST

Professor of Portfolio Management, Tilburg University

CHENDI ZHANG

Associate Professor of Finance, University of Warwick

INTRODUCTION

Over the past two decades, socially responsible investments (SRI), also frequently called ethical investments or sustainable investments, have grown rapidly around the world. SRI is an investment process that integrates social, environmental, and ethical considerations into investment decision making. Unlike conventional types of investments, SRI apply a set of investment screens to select or exclude assets based on ecological, social, corporate governance, or ethical criteria, and often engage with local communities and in shareholder activism to further corporate strategies towards these aims. This chapter is based on Renneboog, Ter Horst, and Zhang (2008a; 2008b; 2011).

If investors derive nonfinancial utility from investing in SRI funds or in companies meeting high standards of corporate social responsibility (CSR), then they care less about financial performance than conventional (non-SRI) investors. Bollen (2007) contends that investors may have a multiattribute utility function that is not only based on the standard risk-reward optimization, but also incorporates a set of personal and societal values. If such values matter to investors, the expectation is for (1) further SRI growth ...