Socially Responsible Investment in the 21st Century: Does it Make a Difference for Society?: Volume 7

The objective of this chapter is twofold. It first introduces the theme of the book. There are many ways of looking at socially responsible investment (SRI). It can be viewed as a financial product where the financial performance is the outmost important aspect and cannot be compromised. Or it can be regarded as a force for change to promote and stimulate a more sustainable development. In this chapter we provide a literature review on SRI especially on the notion of the impact and how it has been addressed so far in the literature. The second objective of the chapter is to provide an overview of the volume by introducing each chapter.

This chapter reviews the literature on SRI as well as the chapters included in this volume.

If SRI is about making a change toward sustainability, we ought to study its societal and environmental impacts. Although scholar articles on SRI have gained importance in the two last decades, very little is known on its impact. Research has developed from a narrow concern with negative screening and divestment in isolated cases to a rigorous analysis of its financial performance across a range of ethical and ESG issues. While we have identified some studies that are beginning to explore the potential impact of SRI for society, this remains a crucial area to explore.

The chapter contributes to the debates on the societal impact of SRI, a debate that needs to be continued even if or just because it raises some fundamental questions that are complex and difficult but also necessary to advance SRI.

This purpose of this chapter is to explore the political significance of modern socially responsible investing, specifically the emergence of investor governance networks (IGNs) and the collective activism of investors.

The research for this analysis is based upon insights and methodologies from political science, specifically within international relations and the constructivist theoretical approach. Investor networks are explored as social phenomena, an expression of changing values, and the contested realm of contrasting norms within the financial sector.

The chapter shows that the development of investor networks have followed a three-stage historical progression of emergence, transformation, and expansion. The increasing collective action by investors manifest in the creation of IGNs reflects the political nature of socially responsible investment in a world where governments are reluctant to lead and act on issues of importance to all citizens, not just investors. As such, these networks are part of the emerging global public domain, a transnational arena of discourse, contestation, and action where investors play a crucial role in articulating what is acceptable behavior by corporations.

The research in this chapter explores a particular aspect of socially responsible investment – the mobilization of collective action by investors – as a political phenomena, not just as an economic one, that has evolved over time. Very little research into SRI has been done from a political science perspective, contextualizing the rise of such investment as the confluence of collective action by increasingly powerful political actors in society. As such, the chapter has value to both scholars and observers of SRI because it emphasizes that the mobilization of investor networks results from broader societal dynamics that should not be underestimated by financial specialists and citizens alike.

To demonstrate how the Society of Jesus (Jesuits) in the United States through the “National Jesuit Committee on Investment Responsibility” played a significant role as a socially conscious institutional and religious investor in influencing Chevron’s Human Rights Policy 520 and to analyze the factors that contributed to a successful shareholder engagement with the company.

Case study based on firsthand information.

1. Our conclusion offers support for Allen et al.’s (2012) conclusion of legitimacy (credibility) being the dominant force in a successful engagement.

2. We found that coalition-building is a significant moderating variable in increasing shareholder salience. This finding contradicts the study by Gifford (2010).

Our conclusion offers support for Allen et al.’s (2012) conclusion of legitimacy (credibility) being the dominant force in a successful engagement.

We found that coalition-building is a significant moderating variable in increasing shareholder salience. This finding contradicts the study by Gifford (2010).

The chapter is based on the actual process of shareholder engagement with Chevron Corporation that led to the human rights policy and is written mainly based on firsthand information.

This chapter discusses how one bank, committed to social innovation and investment in low-income communities, evolved into a model of socially responsible banking and exemplary community development financial institution. The authors draw lessons from this experience and propose ways to apply those lessons to other financial institutions.

The chapter is based on an in-depth case study of ShoreBank. It includes extensive interviews with two of the bank’s cofounders, who served as the bank’s leaders for more than 37 years.

The case study has identified six key enabling factors for social innovation: (1) a social purpose that is deeply, and effectively, embedded in the organization’s mission, strategy, and operations; (2) an ownership structure to support the social mission and a structure (e.g., bank holding company) that facilitates social innovation; (3) capital capacity – that is, ability to create credit through leverage; (4) a deep level of knowledge about the business, the clientele, and the operating environment; (5) talented people who bring both skill and passion for the mission to the institution-building process; and (6) the discipline to continuously innovate, at a scale appropriate to the problem, with resources that are adequate to the challenge.

This work has several limitations including a focus on one U.S. bank holding company, and based on interviews with that bank’s cofounders.

The chapter provides a rich description of how social innovation through social investment created a meaningful social impact. Important lessons and useful recommendations are drawn for social enterprises that are committed to social innovation in the financial services industry.

The chapter provides insights into the ShoreBank case based on a unique set of data. It offers useful recommendations for social enterprises.

This chapter sketches a new development in responsible investing, namely impact investing. Impact investing, which we define as the entire spectrum of investments deliberately aiming to create shared value, can be seen as an integrative approach to wealth creation through investments. The case of microfinance is used to illustrate this new development.

The chapter combines a viewpoint and a case study that serves to illustrate the practical relevance of the viewpoint.

The chapter starts with a brief overview of the origin and rise of responsible investments, followed by a description of mission-related investments and impact investing as its latest development. Microfinance is presented as a special case, thereby focusing on the investors, the asset allocation and the meaning – and application – of the notion of impact.

The chapter shows that a focus on social and financial returns can be combined without having to make serious financial sacrifices. It also demonstrates that investments can come from investors as diverse as pension funds, foundations or high net-worth individuals.

If impact investing really takes off – particularly supported by institutional money – there will be much more opportunity to tackle social and environmental innovation than without those investments.

The chapter challenges (institutional) investors to evaluate their responsible investment strategy and to rethink their asset allocation. Impact investing can become an important addition to the responsible investment landscape.

Much of the management research on socially responsible investment (SRI) consists in demonstrating how SRI is good for business and good for society. But the belief that business and market-based strategies will bring positive social and ecological change is far from natural and results in disputes. This study shows how SRI proponents have to develop and combine arguments in order to construct and defend a valid and plausible discourse on SRI that could resist the critiques and appease the disputes resulting from its institutionalization.

We collect articles in the media to identify the SRI controversies. For these disputes, we look at the attempts of SRI to give a robust justification of the particular arrangement it promotes, vis-à-vis a public audience, and we discuss possible resolutions.

SRI focuses on appealing to conventional finance with a market logic, resulting in very few challenges of the legitimacy of the existing institutional order. In a few cases, SRI seeks a resolution based on a competing principles resulting in hybrid constructions of compromises, which could be consolidated by SRI models and tools.

The results contribute to a better understanding of SRI as it is perceived today, and of how the disputes around its mainstreaming may unfold in the future. This helps us clarify our expectations towards SRI and shows that if we want to address shortcomings in finance, we should probably not rely on SRI as it is defined and practiced in the 21st century.

Socially responsible investment (SRI) engagement currently performs a variety of supportive regulatory functions such as reframing norms, establishing dialogue and providing resources to improve performance, however corporate responses are voluntary. This chapter will examine the potential gains in effectiveness for SRI engagement in a responsive regulatory regime.

Global warming is a pressing environmental, social and governance (ESG) issue. By using the example of climate change the effectiveness of SRI engagement actors and the regulatory context can be considered. This chapter builds the conceptual framework for responsive regulation of climate change.

SRI engagement may face resistance from corporations due to its voluntary nature and conflict with other goals. Legitimacy and accountability limit the effectiveness of SRI engagement functioning as a voluntary regulatory mechanism. This chapter argues that the effectiveness of SRI engagement on climate change could be enhanced if it served as part of a responsive regulation regime.

Engagement is used by SRIs for ESG issues. A comprehensive regulatory regime could enhance corporate adaptation to climate change through increasing compliance with SRI engagement. The implication for SRI practitioners is that lobbying for a supportive regulatory regime has a large potential benefit.

Responsive regulatory policy involves both support and sanctions to improve compliance, enhancing policy efficiency and effectiveness. There are potentially large net social benefits from utilising SRI engagement in a regulatory regime.

In seeking to re-articulate voluntary and legal approaches this research addresses a gap in the literature on climate change regulation.

The chapter describes the phenomenon of company–community agreements in the mining sector, situates them relative to two veins of responsible investment activity, and assesses whether they might serve as a proxy for the “community relations” expectations of responsible investors.

Based on an evaluation of two recent company–community agreements and surveying of executives from mining firms that have signed agreements with Indigenous communities, it was found that: (1) though imperfect as a proxy for many of the “community relations” expectations of responsible investors, company–community agreements offer benefits and make provisions that exceed current expectations, especially with respect to the recognition of the right of Indigenous communities to offer their free, prior, and informed consent to mine developments; and (2) mining executives recognize the utility of agreement-making with communities, and are comfortable with such efforts being interpreted as recognition of the right of Indigenous communities to consent to development.

The chapter serves to introduce responsible investors to the emergence of company–community agreements in the global mining sector, and calls upon them to advocate for their further use in order to reduce the riskiness of their investments, address social justice concerns, and assist communities to visualize and realize their goals.

For the first time, the growing phenomenon of company–community agreements in the mining sector is situated within responsible investment scholarship. Additionally, drawing on both logic and evidence, the chapter challenges the responsible investment community to rethink its approach to screening and engaging the mining sector in order to advance the interests of Indigenous communities.

This chapter describes a number of the ethical, political, and sustainability implications inherent in the investment process; clarifies when and to what extent these implications can manifest themselves; and examines the circumstances under which trustees might wish to consider the relation these implications to the management of their assets.

The arguments made in the chapter are theoretical and based on analyses of historical concepts of fiduciary duty and investment management.

The chapter concludes that in seeking to achieve their primary tasks of acting in beneficiaries’ interests and preserving assets and income, trustees may wish to consider the ethical, political, and sustainability implications of their investment decisions in the light of broadly accepted norms or scientific consensus. If trustees choose to incorporate these considerations, their decisions should be commensurate with the levels of concern raised by these issues, be potentially effective, not impair financial goals, and not require excessive expenditure of resources.

The conclusions of the chapter imply that trustees acting on beneficiaries’ behalf may wish to assess the broad-based, value-creation potential of their investment decisions along with the potential of these decisions to impact portfolio performance relative to asset-specific benchmarks. Considerations of value creation can be in beneficiaries’ interests to the extent that they contribute to strong economies, safe and livable societies, and the preservation or enhancement of natural resources. Additional research is needed to elaborate on how consideration of these types of value creation affects asset allocation and specific security selection, along with its impacts on short-term and long-term financial returns.

This chapter reflects on the role of ethical, political, and sustainability (EPS) concerns in investment processes. Specifically it considers why, when, and how EPS concerns might be considered by trustees.

The anti-apartheid movement represented a cornerstone for socially responsible investors in the 1970s and 1980s driven by the willingness to promote lasting social change. What happened next in terms of socially responsible investing (SRI) in the free South Africa? This chapter explores the local development of SRI in South Africa post-apartheid.

An in-depth literature review combined with a content analysis 73 SRI funds’ investment mandates were undertaken to investigate the local development of SRI in South Africa over the period 1992–2012.

Mechanisms of local divergence and global convergence have both shaped the phenomenon of SRI in South Africa. SRI in South Africa represents a melting-pot of societal values anchored in a local developmental and transformative political vision, some local and global Islamic religious values, and worldwide SRI and CSR homogenisation trends.

This chapter is the first attempt to outline the mechanisms of local divergence and global convergence that have moulded SRI in a democratic South Africa.

This chapter assesses the impact of socially responsible investing (SRI) in terms of its role in governance. Governance refers to the rules, incentives, institutions and philosophies for coordinating, controlling and supervising behaviour. The SRI sector purports to be a mechanism of market governance, such as through its codes of conduct and targeting of individual companies by engagement or divestment.

This subject-matter of the chapter is evaluated primarily through a conceptual and theoretical argument rather than empirical research.

Social investors’ capacity to ‘govern’ the market is constrained by gaps and deficiencies in the legal frameworks for the financial economy. Fiduciary law controlling institutional investors is the most important element of this governance framework. The SRI movement is starting to broaden its agenda and strategies to include advocacy for regulatory reform. But the SRI industry has devoted attention to its own voluntary codes of conduct, such as the UNPRI, which do not yet provide a sufficiently comprehensive or robust substitute for official regulation.

Paradoxically, whereas SRI once stood for taking action through the financial economy when governments had failed to act, the sector is also somewhat dependent on the state to provide an empowering governance framework. But state regulation itself may be strengthened by partnership with the SRI industry, such as by utilising its codes of conduct to supplement official legal standards.

The chapter deepens insights into the relationship between the SRI sector as a largely voluntary movement and its legal governance through the state or the market.

This chapter interrogates the idea that Socially Responsible Investment (SRI) is ‘making the world a better place’. It explores the issue of the societal impacts of SRI by addressing five main questions: (1) Is SRI a viable solution to society’s problems? (2) What are the impediments and limits to SRI’s ability to make a difference in society? (3) Where is ‘ethics’ in SRI? (4) How do we measure societal impacts of SRI? and (5) What is the future of SRI?

This chapter is a reflective piece debating the societal impacts of SRI. For the purpose of this chapter, a focus group was organised and interviews were conducted involving both academics and practitioners.

The chapter highlights and discusses several items that can either enhance or on the contrary hinder the societal impacts of SRI. Some of them are related to understanding of SRI, some concern the practice of SRI, while others are more of an epistemological nature. Based on the discussion, we propose three points of leverage that can enhance the capacity and ability of SRI to create change.

The chapter is a call for more research on the societal impacts of SRI. Research in SRI has dominantly focused on the technicalities of the activity and the financial implications, but has hardly touched upon the question of the societal impact.

There are three primary managerial implications highlighted in this chapter: rethink the notion of fiduciary duties, strengthen the interaction between asset owners and asset managers, and encourage changes in public policy.