ethical investment processes and outcomes there is a growing body of literature on ethical or socially responsible investment across a range of disciplines this paper highlights the key themes in the field and identifies some of the major theoretical and practical challenges facing both scholars and practitioners one of these challenges is understanding better the complexity of the relationship between such investment practices and corporate behaviour noting that ethical investment is seldom characterised by agreement about what it actully constitutes and that much of the extant research focuses on a narrow set of issues the paper argues that there are benefits associated with examining ethical investment as a process

social investing mainstream or backwater social investing though not yet fully mainstream has the potential to obtain such status questions relating to the future of social investing include the following 1 what properly falls within the ambit of social investing assuming that no single definition of social responsibility is feasible what then are the limits 2 what do we need to know about investor psychology concerning social investing what motivates people to buy socially screened investments and why do they sometimes act inconsistently 3 how can we improve the measures of social performance is it possible to develop gaap and gaas equivalents for social reporting 4 should social reports by firms be audited if so how 5 what sorts of public policies are necessary to support the social screening of investments

the financial performance of a socially responsible investment over time and a possible link with corporate social responsibility this paper empirically examines the financial performance of a uk unit trust that was initially conventional and later adopted socially responsible investment sri principles ethical investment principles comparison is made with three similar conventional funds whose investment objectives remained unchanged analysis techniques employed in previous studies find similar results mean risk adjusted performance is unchanged by the switch to sri with no evidence of over or under performance relative to the benchmark market index by any of the four funds more interestingly changes in variability of returns over time are also modelled using generalised autoregressive conditional heteroscedasticity models not previously applied to sri funds so far as is known results show a temporary increase in variability of returns followed by a return to previous levels after around 4 years evidence shows the increased variability to be associated with the adoption of sri rather than with a change in fund management possible explanations for the subsequent reduction in variability include the spread of corporate social responsibility activities by firms and learning by fund managers in addition to reporting on a previously unobserved phenomenon this paper raises questions for further research

measuring investors socially responsible preferences in mutual funds the aim of this study is to analyze investor behavior towards socially responsible mutual funds the analysis is based on an experimental study where a sample of individuals takes investment decisions under different parameters of information about the investment alternatives and expected returns in the experiment each participant decides how to distribute an investment budget between two funds returns on which are uncertain and change over time two treatments are conducted each providing a different degree of information on the socially responsible sr character of one of the two investment alternatives the results obtained suggest that although individuals criteria for investment are essentially guided by returns and diversification participants invest significantly more in a fund when they are explicitly informed about its sr nature in particular participants who declare being concerned about sr actually invest significantly more in the sr alternative furthermore the level of sr faithfulness among a small group of investors is such that they invest the main share of their budget in the sr fund even when the return differential is highly unfavorable providing clear information about the sr characteristics of an investment is crucial to help investors express their preferences

investment with a conscience examining the impact of pro social attitudes and perceived financial performance on socially responsible investment behavior this article addresses the growing industry of retail socially responsible investment sri profiled mutual funds very few previous studies have examined the final consumer of sri profiled mutual funds therefore the purpose of this study was to in an exploratory manner examine the impact of a number of pro social financial performance and socio demographic variables on sri behavior in order to explain why investors choose to invest different proportions of their investment portfolio in sri profiled funds an ordinal logistic regression analysis on 528 private investors revealed that two of the three pro social variables had a positive impact on how much the consumer invested in sri profiled funds moreover there was proof of a non altruistic motive for investing in sri as consumers who perceive that financial return of sri is equal or better than regular mutual funds invested a greater proportion of their portfolio in sri profiled mutual funds furthermore the results showed that women and better educated investors were more likely to invest a greater proportion of their investment portfolio in sri overall the findings indicate that both financial perceptions and pro social attitudes are connected to consumer investment in sri

ethical business and investment a model for business and society two key questions lie at the heart of the business challenge for business ethics is it possible for business and investors to do well while doing good and if so how can this be achieved this paper adopts an international investment perspective to address these questions it demonstrates that it is possible for business and investors to achieve a triple bottom line of environmental social and financial performance

approaching socially responsible investment with a comprehensive ratings scheme total social impact the socially responsible investment industry sri is slowly changing from a screening avoidance paradigm to a comprehensive paradigm that seeks to affect corporate behavior credible rating systems are a key component of this sea change reliable and recognizable social and environmental metrics are critical to this progress the total social impact tsi rating approach is a new social metric scheme based on a comprehensive rating of stakeholder issues this paper describes the evolution of sri ratings and the role that tsi hopes to play in affecting business behavior by promoting principled business leadership

socially responsible investment a multicriteria approach to portfolio selection combining ethical and financial objectives abstract in a context of socially responsible investment sri this paper deals with portfolio selection for investors interested in ethical policies in the opportunity set there are ethical assets and other assets which are not characterized as ethical two goals are considered the traditional financial goal in the classical utility theory under uncertainty and an ethical goal in the same utility framework a new financial ethical bi criteria model is proposed with absolute risk aversion coefficients and targets depending on the investor s ethical profile this approach is relevant as an increasing number of mutual funds are becoming interested in sri strategies from the proposed model an actual case on green investment is developed concerning this case without generalizing to other contexts an analysis of the numerical results shows that efficient portfolios obtained by the traditional e v model outperform the strong green portfolios in terms of expected return and risk but this does not significantly occur with weak green investment

socially responsible investment and fiduciary duty putting the freshfields report into perspective a critical issue for the future growth and impact of socially responsible investment sri is whether institutional investors are legally permitted to engage in it in particular whether it is compatible with the fiduciary duties of trustees an ambitious report from the united nations environment programme s finance initiative unep fi commonly referred to as the freshfields report has recently given rise to considerable optimism on this issue among proponents of sri the present article puts the arguments of the freshfields report into some further both empirical and critical perspective however and suggests that its findings do not call for very much optimism the general argument is that while the understanding of fiduciary duty outlined by the freshfields report seems to allow institutional investors to at least sometimes take some social or environmental considerations into account the support it gives for sri is notably contingent and furthermore it rules out exactly the kind of sri which proponents of social responsibility and environmental sustainability should hold in highest regard proactive cases and socially effective investment strategies if sri is to become an important force for corporate social responsibility through its adoption by institutional investors then it is suggested that legal reform is needed

the heterogeneity of socially responsible investment many writers have commented on the heterogeneity of the socially responsible investment sri movement however few have actually tried to understand and explain it and even fewer have discussed whether the opposite standardisation is possible and desirable in this article we take a broader perspective on the issue of the heterogeneity of sri we distinguish between four levels on which heterogeneity can be found the terminological definitional strategic and practical whilst there is much talk about the definitional ambiguities of sri we suggest that there is actually some agreement on the definitional level there are at least three explanations which we suggest can account for the heterogeneity on the other levels cultural and ideological differences between different regions differences in values norms and ideology between various sri stakeholders and the market setting of sri discussing the implications of the three explanations for the sri market we suggest that there is reason to be sceptical about the possibilities of standardisation if not standardisation is imposed top down whether this kind of standardisation is desirable or not we argue depends on what the motives for it would be to the extent that standardisation may facilitate the mainstreaming of sri it could be a good thing but we entertain doubts about whether mainstreaming really requires standardisation

savings the policy debate in europe thre issues dominate the public policy debate over savings in continental europe first can private savings substitute for public pensions in the provision of retirement income given that the current generosity of pay as you go financed pensions is hardly sustainable in the light of population ageing and if so which policy steps have to be taken to alleviate this transition second does the evolution of a new financial landscape in europe necessitate policy response in terms of taxation and regulation specifically considering the increase in pension funds and third closely related to the other two issues is there too much or too little saving in an ageing europe do we need to subsidise saving more or less than we currently do the paper reviews economic theory and empirical evidence on these intertwinded issues most importantly it identifies many gaps in our theoretical and empirical knowledge that caution us against overly strong policy recommendations

a comparison of models describing the impact of moral decision making on investment decisions as moral decision making in financial markets incorporates moral considerations into investment decisions some rational decision theorists argue that moral considerations would introduce inefficiency to investment decisions however market demand for socially responsible investment is increasing suggesting that investment decisions are influenced by both financial and moral considerations several models can be applied to explain moral behavior we test the suitability of a multiple attribute utility theory maut b theory of planned behavior and c issue contingent model of ethical decision making in organizations in an experimental setting 141 participants traded company shares in a computerized asset market over 12 periods companies varied in morality i e treatment of employees and in profitability i e expected dividends per share participants bids and asks for shares were recorded results indicate that moral considerations influence investment decisions controlling for profit differences between the three models are discussed

investing in peace the motivational dynamics of diaspora investment in post conflict economies post conflict economies often prove daunting for foreign investors many of these nations are reaching out to diasporans emigrants and their descendants living abroad for much needed foreign investment capital little is known about why diasporans invest in their countries of origin recent scholarly inquiry regarding investment decision making has suggested that non pecuniary psychological concerns often motivate investment decisions we develop a conceptual model identifying three types of investment return expectations financial emotional and those related to social status that may drive diaspora investment interest we contend that the psychological realities and social status structure of the diaspora experience generate greater salience for non pecuniary investment motivations particularly when the origin country emerges from a period of conflict we outline an agenda for future research and discuss the implications of our model for policies seeking to promote peace utilizing diaspora investment

the corporate social responsibility of pharmaceutical product recalls an empirical examination of u s and u k markets the pressure on companies to practice corporate social responsibility csr has gained momentum in recent times as a means of sustaining competitive advantage in business the pharmaceutical industry has been acutely affected by this trend while pharmaceutical product recalls have become rampant and increased dramatically in recent years no comprehensive study has been conducted to study the effects of announcements of recalls on the shareholder returns of pharmaceutical companies as product recalls could significantly damage a company s reputation profitability and brand integrity this paper investigates the effect on shareholder wealth and the extent to which the adoption of csr practices by pharmaceutical companies in the united kingdom u k and the united states u s the two largest markets for pharmaceutical products in the world affected market reactions surrounding product recall announcements the analysis of product recall announcements from 1998 to 2004 compiled from the pharmaceutical journal and u s food and drug administration enforcement reports revealed marked differences in the way market participants in the two countries responded to news of product recalls u s investors penalised firms according to the severity of product defects while u k investors were indifferent while u k investors rewarded product recalls by firms which were not usually csr active u s investors punished non csr active firms that performed recalls these observations could pose strategic challenges to pharmaceutical firms operating in both countries

incentive effects of social security on labor force participation evidence in germany and across europe abstract all across europe old age labor force participation has declined dramatically during the last decades this secular trend coincides with population aging the european social security systems therefore face a double threat retirees receive pensions for a longer time while there are less workers per retiree to shoulder the financial burden of the pension systems this paper shows that a significant part of this problem is homemade most european pension systems provide strong incentives to retire early the correlation between the force of these incentives with old age labor force participation is strongly negative the paper provides qualitative and econometric evidence for the strength of the incentive effects on old age labor supply across europe and for the german public pension program

discussion of who is my peer a valuation based approach to the selection of comparable firms bhojraj and lee present a new approach to deriving warranted valuation multiples and selecting comparable firms conference participants comments centered on two key issues first participants questioned the motivation for deriving warranted valuation multiples and selecting comparable firms second participants questioned the procedure through which valuation theory was incorporated in the valuation multiple forecasting process

payroll tax financed social insurance with variable retirement the optimal relationship between retirement benefits and retirement age is derived the model assumes ex ante identical workers zero one labor supply no private savings wages and payroll taxes constant over life random onset of an inability to work and the impossibility of distinguishing those unable to work from those choosing retirement this formulation is meant to capture some issues for retirement programs where governments commonly do not measure disability e g ages 65 70 with intertemporally additive preferences optimal benefits rise with the age of retirement but more slowly than would be actuarially fair a nonadditive example is also considered

are investors willing to sacrifice cash for morality the paper uses questionnaire responses provided by a sample of ethical investors to investigate willingness to sacrifice ethical considerations for financial reward the paper examines the amount of financial reward necessary to cause an ethical investor to accept a switch from good ethical performance to poor ethical performance conjoint analysis is used to allow quantification of the utilities derived from different combinations of ethical and financial performance ethical investors are shown to vary in their willingness to sacrifice ethical for financial performance and hence to display more heterogeneity than the all encompassing ethical label implies because of the existence of sub groups of ethical investors with different attitudes towards financial reward an attempt has been made to associate observable investors characteristics with their level of willingness to trade off morality for cash one sub group of investors in particular appears highly resistant to the idea of accepting higher financial return as compensation for poor ethical performance this unwillingness casts doubt on jensen and meckling s widely reported claim that trade off behaviour is ubiquitous in all areas of life

investing in socially responsible companies is a must for public pension funds because there is no better alternative with assets of over us 1 0 trillion and growing public pension funds in the united states have become a major force in the private sector through their holding of equity positions in large publicly traded corporations more recently these funds have been expanding their investment strategy by considering a corporation s long term risks on issues such as environmental protection sustainability and good corporate citizenship and how these factors impact a company s long term performance conventional wisdom argues that the fiduciary responsibility of the pension funds trustees must be solely focused on their beneficiaries and therefore their investment criteria must be based strictly on narrowly defined financial measures it is also asserted that well established financial measurements of corporate performance already include long term risk assessment through discounted present value of future flow of earnings consequently all other criteria are contrary to the best interest of the pension funds beneficiaries in this paper we assert that contrary to conventional wisdom pension funds and for that matter other mutual funds must be concerned with the long term survival and growth of corporations these measures are generally referred to socially responsible investing sri and when applied to corporations it is termed socially responsible corporate conduct srcc we demonstrate that current measurement of future risk assessment invariably understates and quite often completely overlooks these long term risks because of the inherent bias towards short run on the part of financial intermediaries whose compensation depends greatly on short term results furthermore there is ample evidence to suggest that these intermediaries have been engaging in self serving practices and thus failing in their duties to serve their clients i e pension funds best interests because of their large holdings in the total market as well as individual companies these funds cannot easily divest from poorly performing companies without destabilizing the companies stock and overall markets hence they must opt for a strategy of emphasizing investment criteria that encourage companies to take into account long term aspects of their operations in terms of their impact on environment sustainability and community welfare to name a few we argue that an exclusionary and even a primary focus on short term financial criteria is no longer a viable option it also calls for the pension funds to encourage greater transparency and accountability of the entire corporate sector through improved corporate governance thus socially responsible investing practices are not merely discretionary and desirable activities they are a necessary imperative which both the corporations and public pension funds and other large institutional holders will ignore at serious peril to themselves finally the paper considers some of the recent developments where corporations have been responding to these challenges and how their actions might be strengthened through greater disclosure and transparency of corporate activities it also makes recommendations for the pension funds to support further research in creating new measurement standards that further refine the concept of socially responsible investing as a necessary ingredient of long term corporate survival and growth in the context of a changing economic environmental and socio political dynamic

support for investor activism among u k ethical investors an important goal of ethical investment is to influence companies to improve their ethical and environmental performance the principal means that many ethical funds employ is passive market signalling which may not on its own have a significant effect a much more promising approach may be active engagement this paper reports on a questionnaire study of a sample of 1146 ethical investors in order to assess whether u k ethical investors would support more activist ethical investment and whether they would be prepared to invest in companies which are failing ethically in order to do so the results show general support for the current practice of passive signalling accompanied by soft engagement in the form of lobbying and the development of dialogue in order to improve corporate practice the harder options of investing in companies that err in order to change them is however favoured by consistent minorities

it s a matter of principle the role of personal values in investment decisions we investigate the role of personal values in an investment decision in a controlled experimental setting participants were asked to choose an investment in a bond issued by a tobacco company or a bond issued by a non tobacco company that offered an equal or sometimes lower yield we then surveyed the participants regarding their feelings toward tobacco use to determine whether these values influenced their investment decision using factor analysis we identified investment and tobacco related dimensions on which participants responses tended to load two of these factors relating to the societal impact of investment decisions and the health effects of tobacco were highly significant in determining whether participants selected a tobacco or non tobacco related investment more importantly we found that when the rate of return on a tobacco related investment exceeds the rate of return on an investment not involving tobacco by 1 the intensity of participant concerns about the societal effects of their investment decisions was especially important in determining investment choices this finding indicates that traditional wealth maximization approaches which do not consider the personal values of the investor omit an important factor that affects investment decisions

a model under siege a case study of the german retirement insurance system this study evaluates the positive and negative features of the german public pension system and discusses three reasons for its increasing perceived and real difficulties maturation negative incentive effects and the problems of demographic change the german system in its current form may be able to limp through the coming decades but will cease to be the exemplary bismarckian machine that has created generous retirement incomes at reasonable tax rates current policy proposals are insufficient and a few but incisive design changes and some degree of prefunding could rescue the many positive aspects of the german retirement insurance system

crises in public pension programmes in oecd what are the reform options the paper examines projections of the fiscal liabilities of public pension programmes in a number of oecd countries it investigates the reasons why many countries have built up such liabilities in the past and critically appraises the future projections of pension costs it examines the strengths and weaknesses of four reform options which are currently being discussed and implemented in various countries

socially responsible investing in the united states socially responsible investing sri has emerged in recent years as a dynamic and quickly growing segment of the u s financial services industry involving over 2 trillion in professionally managed assets its conceptual origins can be found in the early history of civilization with it s modern roots in the 1960s this paper provides an overview of the breadth and depth of the concept and practice of socially and environmentally responsible investing describes the investment strategies that together define sri as currently practiced in the u s offers several observations about some of the factors fueling its dramatic growth and presents data showing that investors who choose to invest in a socially and environmentally responsible manner can do so without giving up investment returns sri has matured to a point where virtually any investment need can be met through portfolio design that integrates an investor s personal values institutional mission and or social priorities the socially responsible investment industry in the unitedstates is a young phenomenon even referring to it as an industry ten years ago may have been a bit of a stretch while it has grown dramatically in recent years it is an area of work of study and of practical application that continues to evolve in many significant ways one intriguing example of the ongoing development of the field can be found in the analysis of the language used to describe it the terms social investing socially responsible investing ethical investing socially aware investing socially conscious investing green investing values based investing and mission based or mission related investing all refer to the same general process and are often used interchangeably

estimating the impact of immigrants on the host country social security system when return migration is an endogenous choice in this paper i examine the impact of immigrants on the social security system in germany when return migration is an endogenous choice for this purpose i develop a dynamic stochastic model of joint return migration and saving decisions that accounts for uncertainty in future employment and income and estimate this model using a longitudinal dataset on immigrants from five different source countries i find that immigrants make positive net contributions to both the pension and unemployment insurance systems in germany regardless of their country of origin and age at entry moreover the magnitudes of the net contributions are remarkable for certain groups return migration plays a critical role in generating these positive net contributions in a counterfactual i examine how much exogenous modeling of the return decision which has been the practice of the literature so far changes immigrants net contributions such a restriction causes a serious misestimation of net contributions i also examine the impact of a counterfactual policy experiment in which financial bonuses are provided conditional on return to certain unemployed immigrants such a policy turns out to be ineffective in a number of dimensions