The Market for Socially Responsible Investments: A Review and Evaluation

Abstract

This chapter explains how socially responsible investing (SRI) has evolved in the last few decades and sheds light on its latest developments. It describes different forms of SRI in the financial markets and deliberates on the rationale for the utilisation of positive and negative screenings of listed businesses and public organisations. It also presents key theoretical underpinnings on the subject and reports that the market for the responsible investments has recently led to an increase in contractors, non-governmental organisations (NGOs), and research firms who are involved in the scrutinisation of the enterprises' environmental, social, and governance (ESG) credentials. This contribution raises awareness on the screenings of positive impact and sustainable investments. It puts forward future research avenues in this promising field of study.

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Chapter 9
DOI: 10.4018/978-1-7998-2193-9.ch009
ABSTRACT
This chapter explains how socially responsible investing (SRI) has evolved in the last few decades and
sheds light on its latest developments. It describes different forms of SRI in the financial markets and
deliberates on the rationale for the utilisation of positive and negative screenings of listed businesses and
public organisations. It also presents key theoretical underpinnings on the subject and reports that the
market for the responsible investments has recently led to an increase in contractors, non-governmental
organisations (NGOs), and research firms who are involved in the scrutinisation of the enterprises’
environmental, social, and governance (ESG) credentials. This contribution raises awareness on the
screenings of positive impact and sustainable investments. It puts forward future research avenues in
this promising field of study.
INTRODUCTION
The investors are attracted to the businesses that yield a return on their investments. Yet, a growing seg-
ment of the population, including entrepreneurs, are increasingly integrating their personal values into
all aspects of their life, including financial investing (Sparkes, 2017; Schueth, 2003). Many individuals
are intrigued to incorporate social and environmental goals into their investment decisions (Epstein,
2018; Humphrey, Warren and Boon, 2016; Sparkes and Cowton, 2004; Schueth, 2003). Therefore, they
decide to invest their funds in businesses that promote social responsibility and stakeholder engage-
ment (Majoch, Hoepner, and Hebb, 2017; Mair and Milligan, 2012; Guay, Doh and Sinclair, 2004).
The rationale behind socially responsible investing (SRI) is that such investments address societal and
community deficits (Camilleri, 2015a; Martí-Ballester, 2015; Nilsson, 2009; Ogrizek, 2002). Therefore,
The Market for Socially
Responsible Investments:
A Review and Evaluation
Mark Anthony Camilleri
https://orcid.org/0000-0003-1288-4256
University of Malta, Malta

172
The Market for Socially Responsible Investments
some forms of SRI, including; impact investing, sustainability investing and community investing, among
other nomenclatures, support the environmental issues, human rights, fair labour practices, sustainable
consumption and community involvement (Ooi and Lajbcygier 2013; Capelle‐Blancard and Monjon,
2012; Sparkes, 2017; Aras and Crowther, 2009; Friedman and Miles, 2001).
Several investors may usually be interested in allocating their financial capital toward laudable projects,
as they try to avoid negative externalities, for the benefit of society and the environment (Renneboog,
Ter Horst and Zhang, 2008). Hence, SRI portfolios are regularly screened by specialized contractors
in order to evaluate their environmental, social, and governance (ESG) credentials (Camilleri, 2015a,
2015b; Renneboog et al., 2008). Many stakeholders, including investors, are well aware that there are
numerous instances where big businesses were accused and found guilty of accounting fraud, bribery,
money laundering and/or where they were involved in some corporate scandals, like environmental di-
sasters. Therefore, financial investors should be cautious with their portfolios. Notwithstanding, the SRI
investors are looking for more than just decent returns on their investments, as they may be genuinely
interested in making a positive impact in their society and/or in the natural environment (Nilsson, 2009).
They may be concerned about social justice, human rights, anti-corruption, bribery issues, and diversity
in the corporations’ boards (Camilleri, 2015a, 2017b).
In this light, this descriptive contribution reviews the foundations of SRI and provides a factual sum-
mary of its evolution. It adds value to our academic knowledge as it explains the contemporary develop-
ments in the SRI market. Moreover, it reveals how the financial services industry is setting responsible
investment screens on all types of businesses hailing from diverse sectors. Afterward, it presents the
opportunities and challenges that are affecting the growth or demise of SRI. In conclusion, this contribu-
tion suggests future research avenues in this promising field of study.
BACKGROUND
The roots of the SRI notion can be traced back to various religious movements. The original ‘ethical
investors’ were church investment bodies. Hence, the best-known applications of socially responsible
investing were initially motivated by religion (Sparkes, 2001). This may well reflect the fact that the
first investors to set ethical parameters on SRI were church investors in the U.K., U.S., and Australia
(Sparkes and Cowton, 2004). These churches also played a prominent role in the development of ‘ethical’
investment products (Benijts, 2010; McCann, Solomon and Solomon, 2003; Lydenberg, 2002). Back
in 1758, the Religious Society of Friends (Quakers) prohibited members from participating in the slave
trade. At the same time, one of the founders of Methodism, John Wesley outlined his basic tenets of
social investing. He preached about responsible and irresponsible business practices that could harm
the health and safety of workers. Eventually, Miller (1992) argued that individuals or groups who truly
care about ethical, moral, religious or political principles should invest their money in accordance with
their values and principles.
Sparkes (2001) defined the ethical investments as the exercise of ethical and social criteria in the
selection and management of investment portfolios, generally consisting of company shares. However,
he argued that ethical investing could have been more appropriate to describe non-profitmaking bodies
such as charities and environmental groups (rather than companies). Sparkes (2001) went on to suggest
that value-based organizations applied internal ethical principles in their investment strategies. The
‘ethical investment’ notion mirrored other terms, including; social investing, socially responsible invest-

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