International Social Innovation Research Conference, Glasgow, Birleşik Krallık, 2 - 04 Eylül 2019
Socially
responsible investing (SRI) or ethical investing allows investors to channel
funds into investments that have the potential to create the change they would
like to see in the world. On the demand side, investors would like to have a
range of alternatives that would be able to provide them with both social and
financial returns. On the supply side, different financial contracts and
investment vehicles are created to present such blended value opportunities to
the investors. Among such outlets, ethical mutual funds attract a lot of
interest from the investors. Traditionally, these funds use either negative or
positive screens to form their portfolios. The negative screens call for
excluding specific industries/stocks from the portfolio based on a set of
social, environmental and ethical criteria. The positive screens call for
selecting industries or securities that meet a high threshold level of social,
environmental and ethical performance. More recently, ethical funds added a new
dimension to their screening and started using a triple bottom line (people,
planet and profit) to filter out industries/securities based on social,
environmental, and economic criteria. While the financial performance of
ethical funds have been extensively researched in the literature, there are
very few studies that address the triple bottom line characteristics of the
mutual fund portfolios. This paper analyzes the portfolio holdings of US
open-end mutual funds in order to identify whether the industries and
securities included in funds that claim to be “ethical” are indeed different
from the ones that are included in portfolios with no such claim about social
responsibility. The results of the analysis point out that what is presented as
a clear line between social and financial objectives is in fact a blurry one,
making it a challenge to identify investments that have the potential of
creating change in the world.