Socially responsible investing: Is it for real or just for show?*

Many mutual funds declare themselves as socially responsible investment (SRI) funds. However, it is unclear whether this rhetoric is simply window-dressing to attract capital inflows or reflects genuine concern. We show that companies with better environmental, social, and governance (ESG) performance are more attractive to SRI mutual funds. More importantly, SRI mutual funds positively affect their investee firms' ESG performance after controlling for firm characteristics, possible endogeneity issues, and omitted variables. Furthermore, ownership structure, board members' international experience, and social media attention are important channels through which SRI mutual funds influence their investee firms' ESG performance.

Automated summary

This report points out that many mutual funds declare themselves as socially responsible investment (SRI) funds, but it is unclear whether this is just to attract capital or reflects genuine concern. The study finds that companies with better environmental, social, and governance (ESG) performance are more attractive to SRI mutual funds. Moreover, SRI mutual funds positively impact their investee firms' ESG performance through various channels such as ownership structure, board members' international experience, and social media attention.