Synthetic indicators of mutual funds' environmental responsibility: An application of the Reference Point Method

Socially Responsible Investing (SRI) is broadly defined as an investment process that integrates not only financial but also social, environmental, and ethical (SEE) considerations into investment decision making. SRI has grown rapidly around the world in the last decades. In the last years, given the causes of the 2008 financial crisis, ethical, social, environmental and governance concerns have become even more relevant investment decision criteria. However, while a diverse set of models have been developed to support investment decision-making based on financial criteria, models including also social responsibility criteria are rather scarce. The aim of this paper, in which we focus on the environmental dimension, is to assist individual investors in their investment decisions providing them with a synthetic indicator of mutual funds' environmental responsibility, which is by nature a multicriteria concept and therefore multicriteria techniques are to be used to measure it. The proposed approach is based on the double (reservation-aspiration) Reference Point Method. This scheme is applied to each fund of a randomly selected set of U.S. equity mutual funds, in order to determine, on the basis of a given set of indicators, a pair of synthetic indicators that measure the weak and the strong environmental responsibility degree of each mutual fund, relying on the particular preferences of the investor. (C) 2013 Elsevier B.V. All rights reserved.