Identifying Impediments to SRI in Europe: A Review of the Practitioner and Academic Literature

For more than 15 years, the investment community and the academic community have written extensively on socially responsible investment (SRI). Despite the abundance of SRI thought, the adoption of SRI practices among institutional investors is a comparative rarity. This paper endeavours to achieve two goals. First, by integrating the practitioner and academic literature on the topic, the paper attempts to identify the many impediments to SRI in Europe from an institutional investor's perspective. Second, the paper proposes a unitary framework to conceptually organize the impediments to SRI by using insights from different relevant research perspectives: behavioural finance, organizational behaviour, institutional theory, economic sociology, management science and finance. The paper concludes by presenting the main shortcomings within both the academic and the practitioner literature on SRI and by providing conceptual and methodological recommendations for further research.

[1]  D. Guyatt.  Identifying and Overcoming Behavioural Impediments to Long Term Responsible Investment: A Focus on UK Institutional Investors , 2006 .

[2]  E. Schein.  Organizational Culture and Leadership , 1991 .

[3]  R. Thaler.  The Winner s Curse , 1991 .

[4]  P. Fraser,et al.  Stock Market Short-termism: An International Perspective , 2002 .

[5]  Jean‐Pascal Gond,et al.  Micro-strategies of Contextualization: Cross-national Transfer of Socially Responsible Investment , 2006 .

[6]  Tony Golding.  The City: Inside the Great Expectation Machine: Myth and Reality in Institutional Investment and the Stock Market , 2003 .

[7]  B. Mark.  Organizational culture. , 1996, Annual review of nursing research.

[8]  R. Thaler,et al.  Financial Decision-Making in Markets and Firms: A Behavioral Perspective , 1994 .

[9]  Nicole Woolsey Biggart,et al.  THE ECONOMIC SOCIOLOGY OF CONVENTIONS: Habit, Custom, Practice, and Routine in Market Order , 2003 .

[10]  R. Freeman.  Strategic Management: A Stakeholder Approach , 2010 .

[11]  S. Davis,et al.  The New Capitalists: How Citizen Investors Are Reshaping the Corporate Agenda , 2006 .

[12]  R. Sparkes.  Socially Responsible Investment: A Global Revolution , 2002 .

[13]  J. March,et al.  Information in Organizations as Signal and Symbol. , 1981 .

[14]  S. M. Keane.  Stock market efficiency: Theory, evidence, and implications , 1983 .

[15]  A. Lewis,et al.  The Role of Championship in the Mainstreaming of Sustainable Investment (SI) , 2009 .

[16]  E. Loh,et al.  SPEAKING THE SAME LANGUAGE, SENDING THE SAME MESSAGES , 1999 .

[17]  M. Friedman.  The Social Responsibility of Business Is to Increase Its Profits , 2007 .

[18]  Rob Bauer,et al.  The Eco-Efficiency Premium Puzzle , 2005 .

[19]  R. Thaler.  Advances in behavioral finance , 1995 .

[20]  Silvia Dorado,et al.  Institutional Entrepreneurship, Partaking, and Convening , 2005 .

[21]  R. Monks,et al.  Companies run in shareholders’ long-term interests also serve society’s long-term interests* , 2006 .

[22]  Karl-Erik Wärneryd.  Stock-Market Psychology , 2001 .

[23]  Stefano Rossi,et al.  Ownership: Evolution and Regulation , 2006 .

[24]  R. Nagy,et al.  Factors Influencing Individual Investor Behavior , 1994 .

[25]  P. Philips,et al.  Why Do We Invest Ethically? , 2005 .

[26]  Marguerite Schneider,et al.  Institutional Investor Power and Heterogeneity , 2003 .

[27]  E. Fama.  Market Efficiency, Long-Term Returns, and Behavioral Finance , 1997 .

[28]  M. Haigh,et al.  Financial Markets: A Tool for Social Responsibility? , 2004 .

[29]  S. Sethi,et al.  Investing in Socially Responsible Companies is a must for Public Pension Funds – Because there is no Better Alternative , 2005 .

[30]  A. Hoffman.  Linking Organizational and Field-Level Analyses , 2001 .

[31]  D. Miles,et al.  Testing for short-termism in the UK stock market , 1993 .

[32]  Andrew Millington,et al.  An Empirical Examination of Institutional Investor Preferences for Corporate Social Performance , 2004 .

[33]  M. Schröder.  Socially Responsible Investments in Germany, Switzerland and the United States - an Analysis of Investment Funds and Indices , 2003 .

[34]  A. Lewis.  Morals, Markets and Money: Ethical, green and socially responsible investing , 2002 .

[35]  M. Russo,et al.  A Resource-Based Perspective On Corporate Environmental Performance And Profitability , 1997 .

[36]  D. Hirshleifer.  Investor Psychology and Asset Pricing , 2001 .

[37]  R. Sias.  Institutional Herding , 2002 .

[38]  Shorey Peterson,et al.  The Modern Corporation and Private Property. , 1933 .

[39]  M. Statman,et al.  Normal Investors, Then and Now , 2004 .

[40]  C. D. Sinclair,et al.  Evaluating the Performance of Ethical and Non-Ethical Funds: A Matched Pair Analysis , 2005 .

[41]  K. Wärneryd,et al.  Stock-Market Psychology: How People Value and Trade Stocks , 2001 .

[42]  A. Millington,et al.  Pension Funds and Corporate Social Performance , 2008 .

[43]  Keith P. Ambachtsheer.  Pension Revolution: A Solution to the Pensions Crisis , 2007 .

[44]  Livio Stracca.  Behavioral finance and asset prices: Where do we stand?☆ , 2004 .

[45]  Andrew J. Hoffman,et al.  Changing Environmental Practice: Understanding and Overcoming the Organizational and Psychological Barriers , 2005 .

[46]  Werner F. M. De Bondt,et al.  Herding in analyst earnings forecasts: evidence from the United Kingdom , 1999 .

[47]  L. Preston,et al.  The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications , 1995 .

[48]  Andrew J. Hoffman,et al.  Sources of Environmentally Destructive Behavior: Individual, Organizational and Institutional Perspectives , 2000 .

[49]  C. Louche,et al.  Socially responsible investment: differences between Europe and United States , 2006 .

[50]  Werner F. M. De Bondt,et al.  Betting on trends: Intuitive forecasts of financial risk and return , 1993 .

[51]  W. Powell,et al.  THE IRON CAGE REVISITED: , 1983, The New Economic Sociology.

[52]  J. Elliott,et al.  Financial Accounting and Reporting , 1993 .

[53]  R. Shiller,et al.  The Use of Volatility Measures in Assessing Market Efficiency , 1980 .

[54]  D. Wood,et al.  STAKEHOLDER MISMATCHING: A THEORETICAL PROBLEM IN EMPIRICAL RESEARCH ON CORPORATE SOCIAL PERFORMANCE , 1995 .

[55]  R. Shiller.  Measuring Bubble Expectations and Investor Confidence , 1999 .

[56]  Lennart Swanström.  Management of Sustainability Issues in Indus- try - A stakeholder perspective , 2006 .

[57]  AmbachtsheerKeith,et al.  Improving Pension Fund Performance , 1998 .

[58]  Rob Bauer,et al.  International Evidence on Ethical Mutual Fund Performance and Investment Style , 2002 .

[59]  M. Clarkson.  A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance , 1995 .

[60]  Diane Del Guercio.  The Distorting Effect of the Prudent-Man Laws on Institutional Equity Investments , 1996 .

[61]  F. Schmidt,et al.  Corporate Social and Financial Performance: A Meta-Analysis , 2003 .

[62]  Pierre-yves Gomez,et al.  Conventions: An Interpretation of Deep Structure in Organizations , 2000 .

[63]  John Stittle,et al.  UK Corporate Ethical Reporting—A Failure to Inform: Some Evidence from Company Annual Reports , 2002 .

[64]  John Gardner,et al.  A Comparison of Socially Responsible and Conventional Investors , 2004 .

[65]  Hersh Shefrin,et al.  Behavioral Capital Asset Pricing Theory , 1994, Journal of Financial and Quantitative Analysis.

[66]  G. Vechkanov.  Investments , 2014, Canadian Medical Association journal.

[67]  Marguerite Schneider,et al.  The Antecedents of Institutional Investor Activism , 2002 .

[68]  W. Powell,et al.  The iron cage revisited institutional isomorphism and collective rationality in organizational fields , 1983 .

[69]  E. Fama.  EFFICIENT CAPITAL MARKETS: A REVIEW OF THEORY AND EMPIRICAL WORK* , 1970 .

[70]  Andrew L. Friedman,et al.  Socially Responsible Investment and Corporate Social and Environmental Reporting in the UK: An Exploratory Study , 2001 .

[71]  J. Hawley,et al.  The Emergence of Universal Owners , 2000 .

[72]  H. Nejat Seyhun,et al.  Overreaction or Fundamentals: Some Lessons from Insiders' Response to the Market Crash of 1987 , 1990 .

[73]  R. Greenwood,et al.  Understanding Radical Organizational Change: Bringing Together the Old and the New Institutionalism , 1996 .

[74]  R. Sullivan,et al.  The practice of responsible investment , 2006 .

[75]  J. O. N. Entine,et al.  The Myth of Social Investing , 2003 .

[76]  E. Whitaker.  Evaluation and research of SRI managers , 2006 .

[77]  Kent D. Daniel,et al.  Investor Psychology in Capital Markets: Evidence and Policy Implications , 2001 .

[78]  R. Zeckhauser,et al.  Principals and Agents: The Structure of Business , 1990 .

[79]  G. Stewart.  A climate for change: a trustee's guide to understanding and addressing climate risk. , 2006 .

[80]  J. D. Margolis,et al.  Misery Loves Companies: Rethinking Social Initiatives by Business , 2003 .

[81]  H. Kent Baker,et al.  Mutual Fund Herding and the Impact on Stock Prices , 1999 .

[82]  C. Cowton,et al.  The Maturing of Socially Responsible Investment: A Review of the Developing Link with Corporate Social Responsibility , 2004 .

[83]  Jean-Pascal Gond,et al.  Measuring the Unmeasured: An Institutional Entrepreneur Strategy in an Emerging Industry , 2004 .