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On the Financial Performance of Socially Responsible Investments

Author

Listed:
  • Sébastien Pouget

    (Toulouse School of Economics and IAE (University Toulouse 1 Capitole))

Abstract

Socially responsible (SR) investors’ strategies depend not only on financial analysis but also on information regarding companies’ environmental, social, and governance (ESG) policies. This article relies on various theoretical models to identify the financial performance one can expect from SR investments. In doing so, the article offers insights on the design of SR investment strategies and on the choice of SR investment target companies. The conceptual analyses suggest that SR investors may generate abnormal performance in presence of market inefficiencies. Outperformance may derive from SRI being able to collect better information than other investors on ESG issues, and implementing best-in-class strategies. Outperformance may also follow from engagement strategies bound to enhance firms’ ESG policies. In both cases, outperformance necessitates investments in ESG information collection and analysis, and, potentially, engagement capacities. Some empirical analyses of SR investors’ financial performance are reviewed. They suggest that, to this date, abnormal performance has been observed for engagement strategies.

Suggested Citation

  • Sébastien Pouget, 2014. "On the Financial Performance of Socially Responsible Investments," Bankers, Markets & Investors, ESKA Publishing, issue 128, pages 31-35, January-F.
    • Handle: RePEc:rbq:journl:i:128:p:31-35
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    Citations

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    Cited by:

    1. Amélie Charles & Olivier Darné & Jessica Fouilloux, 2016. "The impact of screening strategies on the performance of ESG indices," Working Papers hal-01344699, HAL.
    2. Sonali Srivastava, 2017. "Tradeoff and Forecasting Approach for Social Responsible Investing: Artificial Neural Network," Vision, , vol. 21(2), pages 143-151, June.
    3. Orlando Gomes, 2020. "Optimal growth under socially responsible investment: a dynamic theoretical model of the trade-off between financial gains and emotional rewards," International Journal of Corporate Social Responsibility, Springer, vol. 5(1), pages 1-17, December.

    More about this item

    Keywords

    Socially Responsible Investments; Investment Strategies; Exclusion; Best-In-Class; Engagement; Performance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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