TY - JOUR

T1 - Rational Socially Responsible Investment

AU - Peylo, Benjamin Tobias

PY - 2014/9/30

Y1 - 2014/9/30

N2 - Purpose – The purpose of this paper is first to give an in-depth discussion of the criticism of socially responsible investment’s (SRI) alleged incompatibility with the concept of rational investment constituting an inferiority to conventional investment so as to disprove unwarranted arguments and identify potential for improvement of SRI. The second objective is to propose a framework that places SRI and conventional investment on the same level of rationality.Methodology – The discussion is based on a literature study. The framework uses a previously published multidimensional optimization approach and embeds it into a new, integrated methodology for investment decisions in the presence of SRI objectives. The framework is empirically evaluated using historic stock market data.Findings – The main findings show that SRI is not necessarily less rational than conventional investment; it can be implemented in an equally stringent and clearly defined methodology. The empirical results prove that investors can pursue SRI objectives without sacrificing performance.Research limitations – Focus is on the German stock market; in the future, research will be expanded to cover international markets.Practical implications – The results may contribute to enhance the SRI methodology. Social implications – Investors may be encouraged to consider SRI, strengthening the concept of sustainability.Originality/value – In the literature, the question of SRI’s compatibility with rational investment has often been cited but seldom scrutinized. An in-depth analysis combined with a framework to exploit of the learnings has yet been missing.

AB - Purpose – The purpose of this paper is first to give an in-depth discussion of the criticism of socially responsible investment’s (SRI) alleged incompatibility with the concept of rational investment constituting an inferiority to conventional investment so as to disprove unwarranted arguments and identify potential for improvement of SRI. The second objective is to propose a framework that places SRI and conventional investment on the same level of rationality.Methodology – The discussion is based on a literature study. The framework uses a previously published multidimensional optimization approach and embeds it into a new, integrated methodology for investment decisions in the presence of SRI objectives. The framework is empirically evaluated using historic stock market data.Findings – The main findings show that SRI is not necessarily less rational than conventional investment; it can be implemented in an equally stringent and clearly defined methodology. The empirical results prove that investors can pursue SRI objectives without sacrificing performance.Research limitations – Focus is on the German stock market; in the future, research will be expanded to cover international markets.Practical implications – The results may contribute to enhance the SRI methodology. Social implications – Investors may be encouraged to consider SRI, strengthening the concept of sustainability.Originality/value – In the literature, the question of SRI’s compatibility with rational investment has often been cited but seldom scrutinized. An in-depth analysis combined with a framework to exploit of the learnings has yet been missing.

KW - Sustainability sciences, Management & Economics

KW - Ethics

KW - Financial investment

KW - Financial performance

KW - Optimization techniques

KW - Portfolio investment

KW - Sustainable development

KW - Ethics

KW - Financial investment

KW - Financial performance

KW - Optimization techniques

KW - Portfolio investment

KW - Sustainable development

UR - http://www.scopus.com/inward/record.url?scp=84915757088&partnerID=8YFLogxK

U2 - 10.1108/CG-08-2014-0089

DO - 10.1108/CG-08-2014-0089

M3 - Journal articles

VL - 14

SP - 699

EP - 713

JO - Corporate Governance

JF - Corporate Governance

SN - 1472-0701

IS - 5

ER -