Financial performance of socially responsible investing (SRI): what have we learned? A meta‐analysis

• DOI: http://doi.org/10.1111/beer.12076
• Author: Jean‐Laurent Viviani,Christophe Revelli
• Date: 01 April 2015
• Published date: 01 April 2015

Financial performance of

socially responsible investing

(SRI): what have we learned? A

meta-analysis

Christophe Revelli1and Jean-Laurent Viviani2

1. Finance and Economy Department, Kedge Business School, Marseille, France

2. Centre de Recherche en Economie et Management (CREM), IGR-IAE, University Rennes 1, France

With a meta-analysis of 85 studies and 190 experiments, the authors test the relationship between socially

responsible investing (SRI) and financial performance to determine whether including corporate social

responsibility and ethical concerns in portfolio management is more profitable than conventional investment

policies. The study also analyses the influence of researcher methodologies with respect to several dimensions

of SRI (markets, financial performance measures, investment horizons, SRI thematic approaches, family

investments and journal impact) on the effects identified. The results indicate that the consideration of

corporate social responsibility in stock market portfolios is neither a weakness nor a strength compared with

conventional investments; the heterogeneous results in prior studies largely reflect the SRI dimensions under

study (e.g. thematic approach, investment horizon and data comparison method).

Introduction

In the past 20 years, socially responsible investing

(SRI), which embodies ethical values, environmental

protection, improved social conditions and good

governance, has increasingly attracted the interest of

individual and private investors, as well as academ-

ics. According to Renneboog et al. (2008a: 1723),

‘Unlike conventional types of investments, SRI

applies a set of investment screens to select or

exclude assets based on ecological, social, corporate

governance or ethical criteria, and often engages in

local communities and in shareholder activism to

further corporate strategies towards the above aims’.

From a scientific standpoint, most research in the

last decade on SRI focused on performance, seeking

to understand whether this type of investment has

financial costs beyond those associated with conven-

tional investments, and whether it affects the finan-

cial or market performance of portfolios. Several

empirical studies have attempted to demonstrate a

causal link between the effect of introducing non-

financial criteria in the investment process and the

financial performance of SRI funds or SRI indices.

Early research largely considered the potential rela-

tionship between corporate social performance

(CSP) and corporate financial performance (CFP)

with the aim of understanding whether including

corporate social responsibility (CSR) within a busi-

ness strategy would improve economic performance.

The syntheses of this empirical work (Griffin &

Mahon 1997; Roman et al. 1999; Margolis & Walsh

2003) and meta-analytic reviews by Orlitzky et al.

(2003), Allouche & Laroche (2005), Wu (2006) and

Margolis et al. (2007) corroborate this positive

relationship.

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Business Ethics: A European Review

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© 2014 The Authors

Business Ethics: A European Review © 2014 John Wiley & Sons Ltd, 9600 Garsington Road,

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doi: 10.1111/beer.12076

158

With the emergence of SRI, around 15 years after

the earliest studies on the CSP–CFP relationship, the

debate has shifted to determine whether SRI funds

and SRI indices are more profitable than conven-

tional investments.1Many studies have demon-

strated a positive, negative or neutral relationship

between SRI and financial performance, and no real

consensus has been reached, despite many authors

attempting to synthesise or interpret the existing

empirical results (Kurtz 1997, 2005; Renneboog

et al. 2008a; Hoepner & McMillan 2009; Capelle-

Blancard & Monjon 2012) and describe the best

practices to apply in empirical analyses (Chegut et al.

2011). The problem thus mirrors the challenge that

the CSP–CFP debate faced a decade ago. Ambiguity

on the actual performance of SRI remains an open

challenge. A meta-analysis can address this challenge

by offering a comprehensive interpretation of

various studies with their heterogeneous results and

methodologies. As Kurtz (2005: 135) recommends,

‘Meta-analysis of the management literature is a

major step forward. It uses sound statistical tech-

niques to aggregate many small studies. It explores

the direction of causality. And most important for

social investors, it divides financial outcomes into

firm-based and market-based categories. Unfortu-

nately, Orlitzky et al. (2003) focus primarily on man-

agement studies, and do not address much of the

recent work of financial academics and investment

professionals. A similar analysis of the financial lit-

erature would be a valuable contribution to our

understanding of this emerging investment style’.

Frooman (1997) conducted a meta-analysis of 27

studies, focusing on the links between socially irre-

sponsible or illegal behaviour and wealth manage-

ment. Margolis et al.’s (2007) meta-analysis features

167 studies and considers several types of CSP,

including ‘SRI screened mutual funds’. They con-

ducted a meta-analysis of 29 relevant studies but

described the results in only a few lines, without

identifying any effect sizes (ESs). Furthermore, they

noted that they ‘failed to calculate weighted aver-

ages’ (Margolis et al. 2007: 20–21) due to the diffi-

culties of quantifying the sample size and the lack of

sophistication of the studies. Finally, in a working

paper, Rathner (2013) sought to assess SRI perfor-

mance but largely ignored ESs and weighted mean

ESs (Hedges & Olkin 1985; Hunter & Schmidt 2004)

on a relatively small corpus (25) of studies. There-

fore, no existing meta-analyses have sufficiently

addressed SRI and its consequences.

The present study, which to the best of our knowl-

edge offers the first international meta-analysis of the

financial performance of SRI, seeks to determine

whether or not SRIs (stocks, bonds, funds and

indices) outperform their conventional counterparts.

This research generates several contributions to the

field of SRI in a theoretical, empirical and manage-

rial perspective. First, this study provides quantita-

tive and empirical evidence that SRI, with respect to

conventional investments, does not add financial

costs or benefits. Compared with all the articles pub-

lished in the field, the main difference of our study is

that the methodology used aggregates all the results

from over 20 years in an attempt to overcome the

lack of consensus using close design but distant sam-

pling and methodological skills. In relation to the

latter, we provide new insight by assessing the role

and influence of the methodology in defining the

results. We argue that the main explanation of the

growing debate around the financial performance of

SRI is that, as stated by Capelle-Blancard & Monjon

(2012: 240), research in the field is ‘data-driven’. The

researchers used all the different data available from

the emergence of environmental, social and gover-

nance (ESG) rating agencies during the last 20 years

to combine multiple methods and improve and

encourage the debate. Moreover, we address the

issue that the research may be data-driven but also

oriented towards ‘data-mining’ or bias, in the sense

that researchers could be ‘value-oriented’ in choos-

ing the best performing stocks in their sample from

their SRI universe. Second, this research provides

significant managerial implications on three levels:

for investors, companies and portfolio managers. If

stating that SRI has no real costs, investors should

move their investments to obtain a similar return to

that achieved through conventional investments but

also reward socially responsible (SR) companies. As

these companies gain access to financial resources,

their financing costs should decrease and thus

encourage the adoption of SR policies in a greater

number of non-responsible companies. In this virtu-

ous circle, as the volume of SR assets under manage-

ment increases, SR portfolio managers also receive

higher fees.

Business Ethics: A European Review

Volume 24 Number 2 April 2015

© 2014 The Authors

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