Does Socially Responsible Investing Change Firm Behavior?

Paper authors: Davidson Heath, Daniele Macciocchi, Roni Michaely, Matthew C. Ringgenberg

Using novel micro-level data, we examine the impact of socially responsible investment (SRI) funds on corporate behavior. SRI funds select firms that pollute less, have greater board diversity, higher employee satisfaction, and higher workplace safety. Yet, both in the broad cross-section and using an exogenous shock to SRI capital, we find no evidence that SRI funds improve firm behavior. The results suggest SRI funds operate through a selection effect, not a treatment effect: SRI funds invest in a portfolio consistent with the fund’s objective, but they do not significantly improve corporate conduct.