Pillar 2—Social Investment Theme

Theoretical models have been developed to understand the relationship between social performance (SP) and corporate performance, with various researchers proposing different viewpoints. These models indicate that investors can be divided into traditional investors, who focus on financial returns, and socially responsible investors, who consider both financial and social factors. Empirical studies on the link between SP and corporate value show mixed results, with no clear consensus on whether SP positively or negatively affects financial performance. Under the Social Pillar framework, community engagement is essential for promoting social sustainability and involves activities that help improve health, uphold rights, and foster inclusivity in communities. Some literature warns that excessive investment in social activities can harm corporate profitability, emphasizing the need for strong governance to moderate CSR spending. Nevertheless, effective community engagement can enhance firm performance, attract investors, and boost employee well-being, leading to overall positive outcomes for both the organization and the community. The chapter also discusses the connections between gender diversity and performance, emphasizing various theoretical frameworks supporting this relationship. In a parallel research stream academic research presents evidence that employee engagement and well-being relate positively to company performance. Lastly, the chapter describes a method for testing social investment strategies using a recursive portfolio approach. This method aims to assess the relationship between social performance and financial performance across various themes, including community, diversity, and workforce.