Concealing the Bottom Line in the Triple Bottom Line

Danışoğlu S.

International Social Innovation Research Conference, Glasgow, United Kingdom, 2 - 04 September 2019

  • Publication Type: Conference Paper / Unpublished
  • City: Glasgow
  • Country: United Kingdom
  • Middle East Technical University Affiliated: Yes


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.