What is it about?
Innovative finance vehicles are required to facilitate the transition towards a sustainable society. Here, we investigate two very successful innovations in the fund industry, namely, the index mutual funds and the passively managed exchange traded funds (ETFs). We study socially responsible investment funds in the US and particularly focus on their financial performance, cost of investing, and degree of active management. We do not find persuasive evidence that the actively managed funds perform better than their passively managed counterparts do. Furthermore, we find that some active SRI funds seem to operate as ‘closet indexers’ with a low degree of active management. We conclude that passively managed socially responsible funds have the potential to enrich the spectrum of financial products that may help advance the sustainability transition.
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Why is it important?
Fund managers face increasing demand from stakeholders to provide transparency about their performance. This also relates to corporate social responsibility of the firms and organizations they invest in. We show that for a mature market like the US, the value added of actively managed 'responsible' funds is absent compared to passive 'responsible' investing.
Perspectives
We think it is possible that active management adds value in markets which face severe market imperfections. Poor data quality makes it hard to research this in detail or to engage in case studies. Investors and funds should take care about the claims made, not only in financial terms, but also in relation to corporate social responsibility.
Mr Bert Scholtens
Rijksuniversiteit Groningen
Read the Original
This page is a summary of: The urge to act: A comparison of active and passive socially responsible investment funds in the United States, Corporate Social Responsibility and Environmental Management, June 2018, Wiley,
DOI: 10.1002/csr.1529.
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