On the Financial Performance of Socially Responsible Investments

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.
Keywords: Socially Responsible Investments; Investment Strategies; Exclusion; Best-In-Class;
Engagement; Performance.
JEL codes: G11; G14; G32.