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1. Introduction
According to the forum for sustainable and responsible investment, $6.57 trillion was devoted to socially responsible investing (SRI) as of mid-2014. This represents about one-sixth of funds under management in the USA, including hedge funds, private equity, and over 300 mutual funds. Empirical research on SRI has increased steadily, particularly in the 2000s as enough data becomes available on past performance of both investment vehicles and benchmark indexes. In this paper we summarize some of the large body of research related to SRI. While SRI can involve both the investment process and firm valuation, we concentrate primarily on the investment view and present an overview of the current research and provide insights into future directions. In the following sections, we discuss briefly the development of SRI and the theoretical issues related to SRI and investment choice. This is followed by a review of the empirical results concerning firm value. The question of whether SR mutual funds and SR indexes perform better or worse than their conventional counterparts is discussed next, and finally, we present suggestions for future research directions.
2. Development of SRI
While the idea of socially responsibility in business has its roots in religious doctrine, most trace its growth in the USA to the social changes relating to anti-military concerns and environmental issues in the 1960s and 1970s, broadening in the 1980s to include the anti-apartheid movement (for a discussion of this development, see Renneboog et al. , 2008a; for a history of global SR developments, see Puaschunder, 2011). Quasi-public institutions (university endowments, city and statement governments, unions) were pressured to divest from controversial products (instruments of war, petroleum products) or repressive political regimes (South Africa, Angola), initiatives that continue to this day (Israel, fossil fuel disinvestment). From the 1960s, new legislation such as the Environmental Protection Act and the Community Reinvestment Act linked major public policy issues (the environment, housing equality) to corporate behavior, giving rise to the idea of corporate social responsibility (CSR) and analyzing corporate behavior under ethical, social, and governance (ESG) criteria. In the 1980s and continuing to today, SR investing has expanded beyond using personal values in portfolio investment decisions to ideas like shareholder activism, social entrepreneurship, and impact investing.
Ethical mutual funds were available as...