Does Socially Responsible Investing Change Firm Behavior?

Using novel micro-level data, we examine the impact of socially responsible investment (SRI) funds on corporate behavior. SRI funds select firms that pollute less, have greater board diversity, higher employee satisfaction, and higher workplace safety. Yet, both in the broad cross-section and using an exogenous shock to SRI capital, we find no evidence that SRI funds improve firm behavior. The results suggest SRI funds operate through a selection effect, not a treatment effect: SRI funds invest in a portfolio consistent with the fund's objective, but they do not significantly improve corporate conduct.

Keywords: Environmental, Social, and Governance (ESG), Institutional Investing, Socially Responsible Investing (SRI), Impact Investing, Sustainability.

JEL Classification: G12, G14

Suggested Citation: Suggested Citation

Heath, Davidson and Macciocchi, Daniele and Michaely, Roni and Ringgenberg, Matthew C., Does Socially Responsible Investing Change Firm Behavior? (January 30, 2022). European Corporate Governance Institute – Finance Working Paper No. 762/2021, Proceedings of Paris December 2021 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3837706 or http://dx.doi.org/10.2139/ssrn.3837706