Ethical Investing: Ethical Investors and Managers

Abstract

Abstract:“Ethical investing” is interpreted in the following paper to be the use of non-financial normative criteria by investors in the choice of securities for their portfolios.Ethical investors may aim at fulfilling duties they feel they have, possibly including increasing the amount of good in society through the consequences of their buying and selling behavior. The main duties are those of not-profiting from bad corporate behavior and of punishing bad (or rewarding good) firms. The main consequence desired is that managers manage corporations in a more ethical manner. But ethical investors (as opposed to some other kinds of investors who are also interested in normative issues) also aim at receiving returns based on the market risk of their investments.If the aim of managers is to maximize shareholder wealth, then ethical investors can fulfill their duties or achieve their desired consequences only if their trading activities affect shareholder wealth, i.e., share price. A theoretical argument is presented to show that this trading activity will not affect share price or return. In addition, reference is made to results of empirical studies which show that ethical stocks yield market returns, i.e., that the share price of ethical firms is unaffected by the actions of ethical investors.If the trading activity of ethical investors fails to affect share price and return, then these investors fail to fulfill any of their goals or to achieve their ends.

Religion and returns in Europe

“…This idea is consistent with the international literature investigating the performance of socially responsible portfolios and funds relative to conventional investments. Most studies do not find any significant difference of risk-adjusted returns between socially responsible and traditional funds (Cortez et al, 2009), which is consistent with Hudson's (2005) argument that the trading activity of ethical investors fails to affect share prices.…”

Socially Responsible Investment and Fiduciary Duty: Putting the Freshfields Report into Perspective

“…8 One such situation in particular seems to be when a certain company or industry is performing extremely poorly along some ESG dimension, but there is no economic disadvantage to such behaviour in the foreseeable future. A genuinely social investor would plausibly want to avoid investing in, or perhaps attempt to reform, this company or industry -part of the reasoning behind the whole SRI movement, after all, is that SRI as such could be a force for penalising poor ESG performance (Domini, 2001;Freshfields Bruckhaus Deringer, 2005;Haigh and Hazelton, 2004;Hudson, 2005;Knoll, 2002;Rivoli, 2003). However, since there is no reason to think that these particular cases of such performance will have any financial relevance in the foreseeable future, such behaviour would seem to be ruled out by the present line of argument.…”

Investing in Peace: The Motivational Dynamics of Diaspora Investment in Post-Conflict Economies

“…Another important driver of investment interest included in the category of social-status returns is related to ''origin-country duty.'' Diasporans often feel a strong social sense of ''duty'' (Hudson, 2005) to invest in their country of origin.…”