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Financial Markets: A Tool for Social Responsibility?

Haigh, Matthew and Hazelton, James (2004). Financial Markets: A Tool for Social Responsibility? Journal of Business Ethics, 52(1) pp. 59–71.

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Objectives of socially responsible investment (SRI) are discussed with reference to the two main mechanisms of the SRI ‘movement’: shareholder advocacy and managed investments. We argue that in their current forms, both mechanisms lack the power to create significant corporate change. Shareholder advocacy has been largely unsuccessful to date. Even if resolutions were successful, shareholder advocacy may still be ineffective if underlying economic opportunities remain. Marketing material and investment prospectuses issued by socially responsible mutual funds (SRI funds) commonly contain the claim that, by affecting corporations' access to capital funding, SRI funds can change corporate practices. This paper makes a contribution by presenting the market share of SRI funds in the regions where they are most developed, being Europe, the U.S. and Australia, to show that this claim is unlikely to eventuate. SRI funds also commonly claim that they will outperform conventional active mutual funds. That the economic performances of both are similar might be explained by their similar portfolio compositions. The paper makes an innovation in the SRI literature by adopting a legitimacy framework to explain the continued presence of SRI funds. To achieve desired social and environmental outcomes, SRI funds are urged to address issues at a more systemic level. A suggested mechanism is the collective lobbying of corporations and, especially, governments.

Item Type: Journal Item
Copyright Holders: 2004 Kluwer Academic Publishers
ISSN: 1573-0697
Keywords: socially responsible; ethical investment; shareholder activism; mutual funds; managed funds; legitimacy theory
Academic Unit/School: Faculty of Business and Law (FBL) > Business > Department for Accounting and Finance
Faculty of Business and Law (FBL) > Business
Faculty of Business and Law (FBL)
Item ID: 52487
Depositing User: Matthew Haigh
Date Deposited: 05 Dec 2017 16:24
Last Modified: 14 Jul 2020 16:28
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