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The History of Ethical, Environmental, Social, and Governance-Oriented Investments as a Key to Sustainable Prosperity in the Finance World
Abstract
In recent decades Socially Responsible Investment (SRI) emerged into an en vogue investment strategy. Socially Responsible Investment (SRI) is an investment philosophy that combines profit maximization with social endeavors. By integrating social, environmental, and financial aspects in investments, socially conscientious investors pursue economic and social value maximization alike. Financial goals can be coupled with catalyzing sociopolitical change in various forms. Socially responsible screenings are “double bottom line analyses” of corporate economic performance and social responsibility, in which socially conscientious investors incorporate Corporate Social Responsibility (CSR) in financial decision making and allocate financial resources based on the societal impacts of the funded entities. Originating from religious and moral considerations, SRI evolved in the wake of sociopolitical deficiencies and corporate social conduct. In the global rise of financial social conscientiousness, differing national legislations and regulatory traditions have led to various SRI practices, which are harmonized by the United Nations (UN). Building on the historic advancement of Financial Social Responsibility in the wake of socioethical deficiencies, this article highlights the potential of SRI in the aftermath of the 2008/09 World Financial Crisis as a means to avert economic market downfalls. During the current financial market reform, additional micro- and macro-research on financial social conduct could foster the idea of Financial Social Responsibility and aid a successful implementation of SRI.
... The aforementioned literature has shown that ESG-driven investing does not fit into the conventional finance theory governed by the efficient market hypothesis and modern portfolio theory, which argues that investors are only driven by return maximization and risk minimization tradeoffs (Diouf et al., 2016;Berry and Junkus, 2013;Brzeszczynski and McIntosh, 2014). Therefore, this study attempts to examine the perception of investors toward ESG in their equity investment decision-making process based on socially responsible investment (SRI) theory (Garling and Jansson, 2021;Kolbel et al., 2018;Puaschunder, 2019), which propagates the idea that today's socially responsible investors do not consider only financial profits as the only criteria, as they are conscious of their social values as well (Ning et al., 2017). The SRI theory is governed by the principles of responsible investment, which proposes that investors should consider ESG factors only for industries and companies where these factors are crucial to the expected returns instead of uniformly giving less weightage or excluding companies with poor ESG performance (Van Dooren and Galema, 2018; Hernandez and Hugger, 2016;Newell and Lee, 2012;Bennett and Iqbal, 2013). ...
Purpose – Environmental, social and governance (ESG) is becoming an increasingly important non-financial parameter for measuring a company’s valuation. The purpose of this study is to assess the relevance of ESG in Indian investors’ decision-making dynamics.
Design/methodology/approach – This study used an exploratory qualitative research approach based on semi-structured in-depth interviews. A mixed method of purposeful and criterion sampling techniques was used to select 21 participants. Thematic content analysis was performed to analyze the data and understand the
relevance of ESG in investors’ decision-making process.
Findings – This study finds that while Indian investors are aware of ESG factors, they prioritize traditional financial metrics like returns and risk over ESG considerations. ESG factors are often treated as secondary, hindered by the lack of standardization in data and ratings, making them difficult to quantify and compare.
Additionally, concerns about greenwashing and unreliable ESG information further reduce their importance in investment decisions. The findings of this study highlight the need for reliable ESG data, standardization and increased investor education for better integration.
Research limitations/implications – This is an exploratory study with limited participants. Therefore, the results cannot be generalized to the Indian population. Different sampling criteria, a larger sample size or a quantitative research design approach may increase our understanding of the relevance of ESG.
Practical implications – This study provides insights into the awareness, relative importance and challenges of including ESG in investment decision-making. The results suggest further standardization and improving the awareness and trustworthiness of ESG reporting will help improve its relevance.
Originality/value – To the best of the authors’ knowledge, this study is one of its kind to investigate the awareness, perception and attitudes of Indian investors toward ESG. This study addresses an identified gap in the existing literature, explores the awareness level of ESG among Indian investors and suggests future research directions.
... Multinational corporations often exploit disparities in tax laws and regulations across jurisdictions to minimize their overall tax liabilities, leading to concerns about tax competition, profit shifting, and erosion of the tax base. This race to the bottom undermines the ability of governments to raise revenue for public services and exacerbates inequality within and between countries [3]. ...
The ethical landscape of state and local tax planning presents a complex interplay between profit maximization and social responsibility. While businesses seek to maximize profits within legal boundaries, their tax planning strategies often raise ethical questions regarding their contribution to the communities in which they operate. This paper explores the tension between profit-driven decision-making and the broader social implications of tax planning at the state and local levels. By examining case studies and ethical frameworks, it assesses the moral responsibilities of corporations towards society and the environment, alongside their financial obligations to shareholders. Moreover, it analyzes the role of government regulations and corporate governance mechanisms in promoting ethical tax practices. The findings highlight the importance of transparency, fairness, and accountability in tax planning processes, emphasizing the need for businesses to consider not only their financial interests but also the welfare of stakeholders and the public. Ultimately, the paper advocates for a balanced approach that integrates profit maximization with social responsibility, recognizing that sustainable long-term success depends on maintaining ethical integrity while pursuing economic objectives. This research contributes to the ongoing discourse on corporate ethics and governance, offering insights into the ethical dilemmas faced by businesses in navigating the intricate terrain of state and local tax planning.
... SRIs is an ethical investment philosophy that incorporates profit maximization with social endeavors (Chamorro-Mera & Palacios-González, 2019). By integrating social, environmental and financial aspects of sophisticated investments, socially conscientious investors pursue economic and social value maximization (Puaschunder, 2019). There is not a zero-sum game to achieve financial goals by compromising social benefit, but it is possible to gain financial profit with catalysing socio-political aspects of the society and various other forms of the utility simultaneously (Ehsan et al., 2022). ...
The chapter aims to study consumer perceptions and preferences toward socially responsible investments (SRIs) offered by the financial institutions from nine major cities in Germany based on perceived religiosity, age, and educational level. Analysis of variance and principal component analysis of a sample of 342 respondents in the 18-60 age group revealed that Muslims are likely to be more conscious than Christians and Jewish towards SRIs. The study also finds that higher education, knowledge, and awareness of the consumers have a positive effect on their preferences in using services of financial institutions while age is not the main factor in the adoption of SRIs. The findings of the study are important for financial institutions, especially for those offering socially responsible investments. Financial institutions can better offer their products and services by understanding the perceptions of consumers and therefore, better position themselves in changing market dynamics.
... SRI is defined as an investment approach that combines monetary objectives with moral or ethical objectives [11]. Since the global financial crisis of 2008-2009, there has been a major surge in the requirement for SRI implementation [12]. The expansion of SRI has led to the emergence of new terms that concentrate on certain facets of investing strategies, such as responsible investment, ethical investment, and green investment. ...
This paper examines the impact of corporate sustainability practices on Chinese investors' decision-making within China's unique CSR framework shaped by government directives. Through focus group discussions with 36 MBA participants from Zhejiang University, the study reveals a general preference for prioritising sustainability in investment appraisal, reflecting the Chinese government's strong stance on CSR. Trust in CSR disclosure depended on historical accuracy and third-party verification. As China strengthens its sustainability directives, this study predicts greater integration of sustainability metrics in China's investment strategies and highlights the symbiotic relationship between state policies, corporate practices and investor perceptions.
... One potential explanation for the mixed findings is that sustainable investing may have different impacts on different dimensions of financial performance, such as risk and return (Brooks & Oikonomou, 2018). Some studies have found that sustainable investing may help reduce risk by identifying and managing CG and SDG risks that may impact the long-term financial performance of companies (Puaschunder, 2019). Other studies (see for example, Amacha & Dastane, 2017) have found that sustainable investing may not compromise financial returns, or may even enhance them, by identifying companies with long-term growth potential and innovative business models. ...
This study investigates the impact of corporate governance (CG) and sustainable development goals (SDGs) practices on financial markets and company performance in Malaysia compared to developed countries like the United States, United Kingdom, Canada, and Singapore. The study uses panel data regression models to analyse the impact of CG and SDG adoption on stock return, volatility, investor sentiment, profitability, liquidity, and solvency from 2017 to 2021. The findings show that CG and SDG practices have a positive impact on financial market and company performance in both developed and developing countries. However, the strength and specific variables of the relationship differ depending on the country context. In developed countries, board responsibilities, remuneration, engagement with stakeholders, SDG4 (Quality Education), and SDG10 (Reduce Inequalities) are positively associated with stock return. In contrast, audit committee effectiveness and SDG8 (Decent Work and Economic Growth), SDG11 (Sustainable Cities and Communities), and SDG13 (Climate Action) are significant in Malaysia and Singapore. The study emphasizes the significance of context-specific factors in determining the effect of CG and SDG practices on financial market and company performance. It recommends Malaysia learn from developed countries’ best practices and adopt a tailored approach to implementation based on its country context.
... Ethical banks are not recent phenomena at the international level (Puaschunder, 2019). Initially led by religious movements and associations, a more laic approach to ethical finance has emerged in Europe since the seventies, which has favored the spread of initiatives and the establishment of new financial intermediaries based on social and environmental principles (Mews & Abraham, 2007;Schwartz, Tamari, & Schwab, 2007 These principles are shared by ethical banks, some of which are organized in networks able to generate synergies and greater visibility to ethical finance. ...
The main purpose of this Subchapter is to make an overview of the concept of circular economy and its connections to sustainability so that it will provide a better understanding and support for effective implementation of circular economy. It also gives information about the most common circular economy business models and practices and the circular economy indicators used for measuring the level of circularity as well. The financial instruments for supporting the circular economy will be addressed as well.
This empirical study investigates the influence of the institutional landscape on investments in green technology and the subsequent impact on firm-level performance. Our research centers on a comprehensive dataset of 609 firms operating within the global automobile sector across 17 countries, spanning the years 2003–2017. We consider various facets of the institutional environment, including national governance, economic growth, the stringency of environmental policy toward innovation and technology (SEP), and the quality of corporate governance. Our panel regression analysis reveals that both SEP and economic growth stand out as pivotal determinants of investments in green technology, and these findings hold steady across alternative model specifications. Furthermore, our research underscores a positive correlation between the institutional environment and firm-level performance. These insights remain robust even when we segment the sample based on national policy stringency and focus on the top innovating countries within the sector. To ensure the reliability of our results, we employed the propensity score matching technique and structural equation modeling as supplementary methods, all of which corroborate our central findings.
Purpose
This study aims to highlight the key aspects of sustainable finance using bibliometric analysis of the relevant literature extracted from two separate databases, Scopus and Dimensions.ai. The present study contributes towards the achievement of sustainable development by providing directions to align financial decision making with different sustainability aspects.
Design/Methodology/Approach
We conducted bibliometric analysis for 1,220 articles from Scopus and 1,437 publications from Dimensions.ai. The most frequently occurring terms in sustainable finance research are explored and visualised using the VOSviewer.
Findings
Bibliometric findings revealed a dynamic evolution of research focus over time. The social component dominated from 2012 to 2016, however a shift to environmental and climate change considerations is noticed from 2016 to 2020. Recent studies (2020-2022) exhibited heightened attention to green finance and renewable energy. Overlay visualizations highlighted similar trends in both the databases, indicating a contemporary emphasis on green finance.
Implications
Theoretical: This study enriches theoretical discourse by mapping the trajectory of sustainable finance research, contributing to a deeper understanding of its evolution.
Practical: Insights from this study guide researchers and practitioners in identifying trends, this can help the integration of green finance principles into corporate strategies.
Social: Findings also raise awareness among stakeholders, and help facilitate socially responsible corporate cultures and informed policymaking.
Originality/Value
The originality of this study lies in its comprehensive bibliometric analysis of sustainable finance research in management studies, drawing data from two major databases and spanning over three decades.
Keywords: Sustainable Finance, Green Finance, Responsible Investing, Impact Investing, ESG Investing, Bibliometric Analysis.
This chapter presents the evolution of academic research in Ethical Investments (EI) research between 1990 and 2019. The chapter analyzes the most influential journals in EI research by searching for papers, which were published on the Scopus database. Results show a steadily increasing rate of EI research during the past 30 years. The chapter reports the top academic journals that permanently publish articles about EI research. The main contribution of this work is to develop a general overview of the leading journals in EI research, which leads to the development of a future research agenda for bibliometric analysis. The survey covers all main areas of Social Sciences, Business, Management and Accounting, Economics, Econometrics, and Finance as well as Decision Sciences and its connections with other analytical fields.
Das folgende Kapitel behandelt soziales Verhalten am Markt in Bezug auf nachhaltiges Investieren. Das dem Menschen innewohnende Grundbestreben zu sozial verantwortlichem Verhalten wird beleuchtet an den folgenden psychologischen Motiven: Ökonomische Nutzenmaximierung, Altruismus, Vertrauen und Reziprozität, unternehmerisches Innovationsstreben, strategische Führungsvorteile durch sozialen Status, Nutzen durch Transparenz und Informationsaustausch, interne Kontrollüberzeugung, Selbstwertsteigerung durch Identifikation und Selbst-Konsistenz sowie die Verkörperung von sozialen und langfristig-orientierten Werten. Umweltökonomisch gesehen behandelt das Kapitel einerseits den Ausschluss von umweltschädigendem Verhalten durch negatives Screening von natürliche Ressourcen schädigende Marktallokationen, gleichzeitig werden aber auch die positiven Potenziale des Finanzmarktes beschrieben, um Nachhaltigkeit finanzierbar zu machen. Insgesamt liefert das Kapitel Potenziale und Problematiken von Nachhaltigkeit und Investitionen. Lösungen zur Klimawandelfinanzierung über Generationen sowie Implementierung von Nachhaltigkeit werden beschrieben mit dem Ziel, dem ökologischen Fairnessmandat für diese und folgende Generationen gerecht zu werden.
The 2008/2009 World Financial Crisis underlined the importance of social responsibility for the sustainable functioning of economic markets. Heralding an age of novel heterodox economic thinking, the call for integrating social facets into mainstream economic models has reached unprecedented momentum. Financial Social Responsibility bridges the finance world with society in socially conscientious investments. Socially Responsible Investment (SRI) integrates corporate social responsibility in investment choices. In the aftermath of the 2008/2009 World Financial Crisis, SRI is an idea whose time has come. Socially conscientious asset allocation styles add to expected yield and volatility of securities social, environmental, and institutional considerations. In screenings, shareholder advocacy, community investing, social venture capital funding and political divestiture, socially conscientious investors hone their interest to align financial profit maximization strategies with social concerns. In a long history of classic finance theory having blacked out moral and ethical considerations of investment decision making, our knowledge of socio-economic motives for SRI is limited. Apart from economic profitability calculus and strategic leadership advantages, this paper sheds light on socio-psychological motives underlying SRI. Altruism, need for innovation and entrepreneurial zest alongside utility derived from social status enhancement prospects and transparency may steer investors' social conscientiousness. Self-enhancement and social expression of future-oriented SRI options may supplement profit maximization goals. Theoretically introducing potential SRI motives serves as a first step toward an empirical validation of Financial Social Responsibility to improve the interplay of financial markets and the real economy. The pursuit of crisis-robust and sustainable financial markets through strengthened Financial Social Responsibility targets at creating lasting societal value for this generation and the following.
p>In the wake of historical and political events, stakeholder pressure can trigger shareholders to divest from politically incorrect markets with the goal of accomplishing socio-political change. While mainstream development research advocates for more private investor involvement in sustainable development to achieve the Sustainable Development Goals (SDG)s in funding infrastructure, health, education and climate change mitigation; the following paper introduces political divestiture as an alternative means to implement sustainable development. While foreign investment can create positive conditions for improving societal development, also politically incorrect usage of funds or regulatory lacunae can do harm in the developing world. Political divestiture is portrayed as an innovative investment allocation to maximize positive development impacts of investment whilst minimizing associated risks of politically insecure markets. In an attempt to balance risk and access to capital, political divestiture is proposed as a means to implement sustainable development by removing funds from politically incorrect regimes in order to be channeled towards socially responsible and sustainable finance solutions. Future research outlooks on political divestiture as sustainable development driver comprise the antecedents and success factors as well as institutional and international frameworks to foster Financial Social Responsibility in the long-term international development domain.</p
The implementation of climate stability accounts for the most challenging contemporary global governance predicament that seems to pit today’s generation against future world inhabitants. In a trade-off of economic growth versus sustainability, a broad-based international coalition could establish climate stability. As a novel angle towards climate justice, this paper proposes to search for a well-balanced climate mitigation and adaptation public policy mix guided by micro- and macroeconomic analysis results, and a new way of funding climate change mitigation and adaptation policies through broad-based climate stability bonds that also involve future generations that complement taxation and emission trading system solutions. Contemporary climate stability financing strategies are discussed in order to derive recommendations how market economies can be brought to a path consistent with prosperity and sustainability. Finding innovative ways how to finance climate abatement over time coupled with future risk prevention as well as adaptation to higher temperatures appears as an innovative and easily-implementable solution to nudge overlapping generations towards climate justice in the sustainability domain.
This article considers the effect, if any, that company law and corporate governance law had on the phenomenon of excessive lending and borrowing that occurred in the Irish economy towards the end of the Celtic Tiger era (1990–2008). The final years of the Celtic Tiger period saw the growth and collapse of the Irish property bubble, fuelled by lending of ‘cheap’ money by Irish banks and borrowing by indigenous Irish property development companies. This chain of events culminated in a state guarantee and bailout of the Irish banking sector which has led to ongoing significant damage to Ireland and its economy, the full consequences of which are continuing to be manifest. What is clear is that excessive risktaking by banks, as lenders, and property development companies, as borrowers, led to the collapse of both sectors. The Irish property bubble, and this pattern of behaviour that caused it, is used here as a case study to raise questions as to why corporate governance law and company law seem to have failed to curtail such risktaking during this period. In describing these events from a legal perspective, the paper hypothesises that the failure of law can be explained by considering the inter-relationship between law and non-legal norms, the latter seeming to be more powerful and to have the ability to trump the rule of law in certain circumstances and contexts. This analysis of the role of non-legal norms is not intended to suggest that legal frameworks do not matter, but more to illustrate that, where they have failed to deliver stated goals, other factors must be understood so that the law can address the causes and drivers of this failure.
This book is concerned with the theory and practice of social investment as a profession. It offers a conceptual foundation for investment policy and research, and reviews empirical studies supporting new directions in investment policies. It also provides guidelines for trustees, based on the best available knowledge of corporate behaviour, and presents researchers with key hypotheses to follow in gathering data for the evaluation of social investment norms. A unique study, it provides the basis for defining social investment as a field of knowledge.