Does Socially Responsible Investing Change Firm Behavior?*

Using micro-level data, we examine the behavior of socially responsible investment (SRI) funds. SRI funds select firms with lower pollution, more board diversity, higher employee satisfaction, and better workplace safety. Yet, both in the cross-section and using an exogenous shock to SRI capital, we find that SRI funds do not significantly change firm behavior. Moreover, we find little evidence that they try to impact firm behavior using shareholder proposals. Our results suggest that SRI funds are not greenwashing, but they are impact washing; they invest in a portfolio of firms with better environmental and social conduct but do not follow through on their promise of impact.

Automated summary

Using micro-level data, this study examines the behavior of socially responsible investment (SRI) funds. It finds that despite selecting firms with better environmental and social conduct, SRI funds do not significantly change firm behavior or try to impact it using shareholder proposals. The findings suggest that SRI funds are engaged in impact washing rather than greenwashing.