Socially Responsible Investing : a comparative analysis of environmental, social, governance, reputational and labor factors

Abstract

Socially Responsible Investing (SRI) aims to deliver competitive investment returns while fostering social good. It aims achieves its objective by including a firm's corporate social performance (CSP) in its investment d s . I has giesgnfct momentum over the past few years and is poised to assume a mainstream role in the asset management business. However, the scholarship on the effect of corporate social performance on a firm's corporate financial performance (CFP) is ambiguous. CSP is a complex entity made of multi-dimensional sub-components. This thesis attempts to breakdown the multi-dimensional CSP into its core constituent dimensions and to examine their inter-relationships and relationship with CFP, using statistical analysis. Two different vendor data sets were used as samples to understand if proprietary transformations made by vendors affect results. Analysis reveals that differences in factor payoff horizons, difficulties in transforming environmental, social and governance data into composite CSP ratings and the proprietary nature of such transformation could be some of the contributing factors to the ambiguity in establishing the nature of CSP-CFP relationship.