Why Do We Invest Ethically?

Abstract

Analysis in this paper has proposed three potential motives for ethical investmentfinancial returns, non-wealth returns and social change. The motives are developed from the literature and illustrated in the context of a 'best of sector' fund and a socially screened fund. We find that the proposed motives are neither exhaustive nor exclusive and one single motive will not explain the behaviour of all ethical investors. There may be a trade-off between financial and psychic returns for some investors. The trade-off for consumption-investors is expected to be close to zero (total utility is maximised with small levels of ethical investment in the fun of participation model) and is expected to vary with the ethical intensity of investment-investors, as shown when we include ethical intensity into the investor's utility function. Psychic return can also be viewed as an increase in happiness and this approach would lend itself to empirical testing to increase our understanding of why we invest ethically.

Which proportion of SR investments is enough? A survey-based approach

“…The generally accepted view is that welleducated and less wealthy women or young adults are concerned about SR issues in the investment decision to a higher degree. Several studies such as Beal and Goyen (1998), Rosen et al (1991), Tippet and Leung (2001), Beal et al (2005), Schueth (2003), Haigh (2008), Nilsson (2008), Nilsson (2009), Junkus and Berry (2010), Cheah et al (2011) and Pérez-Gladish et al (2012) confirm this point of view. On the contrary, McLachlan and Gardner (2004) and Williams (2007) find little evidence that ethical investors differ in demographics compared to their conventional counterparts.…”

“…While some literature examines the determinants for the probability of investing socially responsibly (e.g., Junkus and Berry 2010;Dorfleitner and Utz 2014) and for the amount that is invested socially responsibly (e.g., Nilsson 2008;Bauer and Smeets 2015), to date, no study exists which addresses the issue of the optimal percentage of SR investments in a portfolio. Beal et al (2005) provide evidence that SR investors gain non-financial benefits from the social attribute of their investments. Similarly, Bollen (2007) comes to the conclusion that SR investors derive utility from owning securities of sustainably managed companies.…”

Development and validation of the Perceived Investment Value (PIV) scale

“…Recently many studies have adopted consumer behavior theories and techniques to provide a more holistic view of investing, the preferences that affect it, and also financial behaviors in general (Beal et al, 2005;Clark-Murphy & Soutar, 2005;Canova et al, 2005;Hsee et al, 2008;Liang et al, 2009;Lovett & MacDonald, 2005;Meier et al, 1999;Sullivan & Miller, 1996;Wärneryd, 1999). This approach posits that consumers may desire and obtain certain outcomes from investments that have not been anticipated in mainstream finance and economic literature.…”

“…This approach posits that consumers may desire and obtain certain outcomes from investments that have not been anticipated in mainstream finance and economic literature. Those outcomes might include entertainment considerations (Dorn & Sengmueller, 2009); self-expressive benefits (Statman, 2004); self-expressive, emotional, and experiential benefits (Fama & French, 2004); and psychic return (Beal et al, 2005;Cullis et al, 1992). Illustrations were also offered by Nilsson (2009), who compared investment styles among mutual-fund investors and identified a group primarily concerned with the social responsibility of the funds, and Sullivan and Miller (1996), who identified three types of venture capital investor distinguished by economic, hedonistic, and altruistic motives related to their investments.…”

Not everybody wants to save the world

“…Economic goals most often cited by investors include maximizing returns, increasing fi nancial wealth, 6 achieving returns relative to standard benchmarks and personal satisfaction. 7 Investors who give greater importance to the above-mentioned goals are referred to as Economically Responsible (henceforth ER) in contrast to others who will be referred to as non-ER investors. ER investors are usually considered to be more knowledgeable about the investing process and fi nancial markets.…”