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Socially Responsible Finance: How to Optimize Impact

Author

Listed:
  • Augustin Landier
  • Stefano Lovo

Abstract

Can a socially responsible fund (SRF) improve social welfare while maximizing assets under management? We consider a two-sector model integrating financial intermediation, emissions’ negative externalities, and investors’ social preferences with regard to value alignment and impact. In scenarios with a high proportion of value-aligned investors, the SRF invests in clean sectors and compels recipients companies to use low-emission suppliers from the polluting sector, which appeals to both investor types. Alternatively, the SRF adopts a dual-fund approach, with one fund targeting clean sectors for value-aligned investors and another focusing on reducing direct emissions in polluting sectors to attract impact investors.

Suggested Citation

  • Augustin Landier & Stefano Lovo, 2025. "Socially Responsible Finance: How to Optimize Impact," The Review of Financial Studies, Society for Financial Studies, vol. 38(4), pages 1211-1258.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:4:p:1211-1258.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhae055
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    More about this item

    Keywords

    G11; G23; M14; O44; Q50;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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