Socially Responsible Investment – Definition

Cite this article as:"Socially Responsible Investment – Definition," in The Business Professor, updated April 15, 2019, last accessed October 25, 2020,


Socially Responsible Investment Definition

A Socially Responsible Investment (SRI) is a type of investment aimed at making profit but only by investing in socially responsible projects or businesses. For socially responsible investors, businesses they can invest in include those that enhance safety, human rights, environmental wellness and consumer protection. They avoid investments in companies that produce or sell tobacco and alcohol. They also avoid gambling, pornography, fossil fuel and other similar businesses. Socially responsible investors can offer SRI to individuals companies through exchange-traded fund (ETF) or a socially conscious fund. Hence, a SRI seeks financial gains and positive social change.

A Little More on What is Socially Responsible Investment

Socially Responsible Investment, SRI is a widely practiced investment habit that make funds available to organizations with social responsibilities. In general, socially responsible investors invest in companies through socially conscious mutual fund or exchange-traded fund (ETF). Investors scout for companies with good environmental outlook, social responsibility and corporate governance, these sum up to we call ESG. Before investing in companies, socially responsible investors assess the financial outlook of the company they want to invest in. SRIs seek to achieve two goals which is social impact and financial gain. Hence, if a company has a good record of social responsibility and has a good financial outlook, socially responsible investors are likely to invest in it.

Socially responsible investment can be traced back to the 1960s and 1970s. During this time, socially conscious investors want to leave lasting impacts in the society, they contribute to causes such as women’s rights, civil rights and the anti-war movement. Also, in this era, the religious sector believe that it was a sin to make money at the expense of people’s health or social welfare. And this is why SRIs do not target companies that produce toxic chemicals, tobacco, alcohol or gambling houses. Also, the role of Martin Luther King in creating awareness for civil rights that lead to the awakening of socially conscious investors cannot be sidelined.

References Socially Responsible Investment

Academic Research on Social Responsibility Investment Funds

The impact of socialresponsibility screens on investment performance: Evidence from the Domini 400 social index and Domini Equity Mutual Fund, Sauer, D. A. (1997). Review of Financial Economics, 6(2), 137-149. There are certain restrictions noticeable in the investments patterns of socially responsible investors. These investors evaluate potential companies using both social and financial criteria. This paper investigates the effects of these criteria or restrictions on investment performance, it studies the performance of socially responsible portfolios or investments and compare it with unrestricted portfolios. This study is conducted by empirically studying evaluated investments or screen stocks and portfolios that are void of restrictions. It examines the effects of subjugating portfolios to social and financial screening or criteria and its potential performance implications on the portfolios.

The maturing of socially responsible investment: A review of the developing link with corporate social responsibility, Sparkes, R., & Cowton, C. J. (2004). Journal of Business Ethics, 52(1), 45-57. Socially responsible investment (SRI) has evolved in recent times, it has drastically grown from what it used to be as it has recorded much impacts on the outlook and performance of companies or organizations with social responsibility. This paper examines the development of SRI and its prospects in corporate social responsibility. It also studies how SRI is globally recognized and adopted by numerous investment institutions. This paper also examines the shift in SRI from margin to mainstream and how this constitutes to a new form of SRI shareholder pressure. The effects of shareholder pressure on institutional investors are also explored.

Financial markets: a tool for social responsibility?, Haigh, M., & Hazelton, J. (2004). Journal of Business Ethics, 52(1), 59-71. There are two main goals of Socially responsible investments, these are financial profits and social responsibility. This paper investigates the objectives of SRI in line with the two mechanisms listed above and whether the two mechanisms can initiate significant changes in the corporate market. It also examines the success or failure of shareholder advocacy and managed investments. This paper finds out that the two main mechanisms of socially responsible investments do not have the power to create significant changes. Shareholder advocacy has also been studied to be ineffective in financial markets. This paper however presents a literature on SRI funds, corporate practices, market share and other dynamic issues relating to socially conscious investments.

Finance as a driver of corporate social responsibility, Scholtens, B. (2006). Journal of business ethics, 68(1), 19-33. The importance of finance in any business, market or economy cannot be overemphasized. Finance is an undisputable mechanism that drives sustainability in markets, it also has the force to influence policies and performance of corporate entities. This studies the role of finance in corporate social responsibility. It examines how finance affect corporate social responsibility and highlights both direct and indirect linkages between finance and sustainability. Hence, this paper studies finance as a driving force of Corporate social responsibility (CSR)  as well as how it is a powerful mechanism in policy and practise of social responsibility.

Evaluating the ‘social responsibility‘of Islamic finance: Learning from the experiences of socially responsible investment funds, Sairally, S. (2007). In Advances in Islamic Economics and Finance: Proceeding of the 6th International Conference on Islamic Economics and Finance (Vol. 1, pp. 279-320). Islamic teachers strongly preach against the amassment of wealth at the detriment of people’s welfare.  These preachers often articulate Shariah’s objective of promoting the welfare of society, and how Islamic believers need to align themselves with this objective by investing in socially responsible companies, projects or businesses. This paper studies the Islamic finance modes as exhibited in socially responsible investments. An evaluation of Islamic finance is carried out using a study on socially responsible investment funds by Islamic finance. This paper studies the impacts of Islamic Finance Investment (IFI) on the performance of Corporate Social responsibility. It also studies the objectives of IFIs and the level of commitment shown in achieving these objectives.

Corporate social responsibility in the international banking industry, Scholtens, B. (2009). Journal of Business Ethics, 86(2), 159-175. Corporate Social Responsibility (CSR) are not limited to societal projects and community development schemes, this framework is applicable in specific industries of a nation’s economy. CSR needs to be assessed not only by investors but also by an international institution. This paper look at the assessment of corporate social responsibility within the international banking industry. This industry is one with a wide scope, wide coverage and global reach. This paper however aims to offer a concrete framework that will aid the assessment of corporate social responsibility with international banks. This study used 30 financial institutions across countries and regions to find significant improvement of CSR and its differences among individual bank, countries and regions.

Corporate social responsibility: why business should act responsibly and be accountable, Adams, C., & Zutshi, A. (2004). Australian accounting review, 14(34), 31-39. There are certain expectations from businesses or firms saddled with social responsibility, this is not only because they enjoy socially responsible investments (SRI) but because they play crucial roles in the development of an economy. Due to the significant roles that these businesses perform, they are expected to be responsible and accountable. This paper examines why it is important for a business under corporate social responsibility to act responsibly and be accountable. This paper further examines factors that compel businesses to adopt corporate social responsibility and also give timely social reports of their activities. It also examines problems associated with reporting practises and factors that constitutes a good report.

Corporate governance and corporate social responsibility: issues for Asia,, Welford, R. (2007). Corporate Social Responsibility and Environmental Management, 14(1), 42-51. Using corporate social responsibility businesses in Asia, this paper examines corporate governance and its impacts on corporate social responsibility. This paper identifies that the objectives of corporate social responsibility can only be fully achieved when there are good standards and professional practices guiding its activities. This paper examines the role of good governance on the performance of CSR and its value creation and value-adding impacts. It further investigates corporate social governance issues arising from CSR firms in Asia. The Asian perspective of the corporate social governance, its impacts and issues pertaining to it are explored in this paper.

International evidence on ethical mutual fund performance and investment style, Bauer, R., Koedijk, K., & Otten, R. (2005). Journal of Banking & Finance, 29(7), 1751-1767. This is a study of the interaction between investment style and investment (fund) performance, this paper seeks to unravel the mutual interplay between the two contexts. With the aid of an international database, international evidence was drawn on the ethical mutual relationship between fund performance and investment style. 103 ethical mutual funds from German, United Kingdom and United States were reviewed to find out how investment style reflect on investment or fund performance. The findings of this study which include mutual fund variation, financial returns on investments, mutual ethical indexes and other relevant findings are discussed.

Is there a market for virtue?: The business case for corporate social responsibility, Vogel, D. J. (2005). California management review, 47(4), 19-45. Quite a number of businesses operate as corporate social responsibility with specific objectives, these businesses are governed by corporate social rules and they must be responsible and accountable. This paper presents a study on the market virtue for corporate social responsibility. It examines whether there is a market virtue for businesses in corporate social responsibility. If there are, it highlights what these market virtues are and if there are not, if gives insights to why this is so.


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