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Social issues and socially responsible investment behavior: a preliminary empirical investigation.

An important dimension of the ongoing demand for greater corporate social responsibility is the emergence of the socially responsible investor (SRI). The SRI invests in companies whose actions support social objectives deemed desirable by the investor, e.g., reducing environmental pollution.

There are two broad groups of SRIs: individuals and institutions such as public and private pension funds, trusts, and endowed institutions (e.g., universities or religious orders). While a couple of studies have examined the socially responsible investment criteria used by institutions such as pension funds (Gasper and Schweig 1985) and religious groups (Wokutch 1984), no studies have measured the identity, objectives, expectations, and social screens used by individuals in their investment decisions. As a result, the SRI is unknown except through anecdotal evidence (Schonbak 1984).

Nevertheless, improving knowledge of the SRI is important for several reasons. First, the SRI is important to business given the growing volume of investor funds subjects to social screens and the need to anticipate challenges to corporate actions from a key stakeholder group. Second, the financial power of this group is substantial. For example, SRIs have invested hundreds of millions of dollars with mutual funds which incorporate a social screen in their investment decisions such as the Calvert Social Investment Fund, Pax World, and Dreyfus Third Century. To attract investment from SRIs, understanding what issues are salient to this group is critical. Finally, a database on the SRI establishes a baseline from which to track future developments and shifts in the importance of different social issues. This paper presents results of a study designed to answer some important questions about the individual SRI. First, who are SRIs? How do they differ from other investors? How homogeneous is the group of SRIs? Second, what issues are salient for this group as determinants of socially responsible corporate behavior? What do they expect from companies they invest in?


As with many contemporary social trends, the socially responsible investment movement emerged in the late 1960s as part of a broad challenge to business to conduct its affairs in a more socially responsible manner. In his "new social contract," Steiner suggests that "it is the duty of business today to anticipate potentially serious impacts of its action on individuals and prevent undesirable results" (1972, 22). Rather than wait for managers to recognize their social responsibilities, individuals and institutions seek to induce socially responsible behavior by becoming activist stakeholders in the task environment of corporations and by using financial investments to either punish or reward firm behavior (Freeman 1984). Increasingly, such behavior is becoming institutionalized. A good example is the move toward legislating forced divestiture by public pension funds of stocks of companies doing business in South Africa (Apcar 1984). However, these laws do not govern individual private investors. Their identities, attitudes, and behaviors must be studied to gauge what role social criteria play in their investment decisions.

Some suggestions about the identity of the individual SRI can be drawn from research on socially responsible consumers such as those who reduce energy consumption (Ritchie, McDougall, and Claxton 1981), use nonpolluting household products (Brooker 1976; Henion, Gregory, and Clee 1980), or recycle (Anderson, Henion, and Cox 1975). Murphy summarizes the literature as indicating that socially concerned consumers are "younger, better educated and more affluent than the general populace" (1978, 316). Socially responsible consumption is presumably relevant and important to SRIs. However, a list of issues important to SRIs would not be identical to a list of socially responsible consumption behaviors. Many of the former fall beyond the scope of consumer behavior, such as providing equal employment opportunities. Thus, the individual SRI cannot be presumed to be identical to the socially responsible consumer. Personal interviews with person active in the socially responsible investment movement reveal two schools of thought about who the SRI might be. The first school holds that socially responsible investment is one of a range of socially beneficial activities the SRI engages, in, including recycling, activism in cause-related groups (e.g., Sierra Club), energy conservation, etc. Thus, socially responsible investment is an extension of an individual's lifestyle. The other school characterizes the SRI as a "guilty yuppie." That is, socially responsible investment is an activity meant to compensate for a "me-oriented" way-of-life, rather than one element of an all-encompassing lifestyle. While each school of thought has merit, there are no hard data to support either.


Anderson (1986) defines three broad areas of corporate social responsibility: complying with laws, philanthropic giving, and conforming to moral and ethical standards. Socially responsible investment is an attempt to move companies toward these objectives. However, precisely defining social responsibility is problematic. There is no commonly agreed upon definition. Instead, organizations that incorporate social screens in their investment decisions usually develop a set of individualized screening criteria. Typical of these codes is that of the Calvert Social Investment Fund which includes environmental, labor relations, minority advancement, and management style considerations (Schonbak 1984). In practice, implementation of these concepts is difficult because the distinction between responsible and irresponsible firms depends on norms set in particular social contexts and the behavior of an organization changes over time. Also, most investment decisions are qualified by other criteria such as rate of return and safety.

Regardless of which issues they perceive as salient, all SRIs operationalize their concerns by not investing in firms perceived as "bad" and directing investment toward companies perceived as "good." Figure 1 outlines four corporate behavior scenarios, where corporations are categorized into one of four quadrants based on their behavior. "Good" and "Bad" corporate behaviors are scaled orthogonally to each other, meaning that the absence of "bad" practices does not necessarily mean the firm is doing something "good." For example, a company that does not pollute (i.e., absence of bad behavior) may not necessarily be actively involved in performing socially good behaviors (e.g., day care program for employees with small children) beyond the normal corporate objectives of producing profits and employment. Thus, there are four scenarios.

(1) AFFIRMATIVE: Companies in this quadrant avoid behaviors perceived as "bad," and actively engage in activities which SRIs would consider socially proactive.

(2) AVOIDANCE: Firms in this sector, while not on the "cutting" edge" of social action, attempt to avoid activities which would be considered "bad."

(3) AMBIVALENT: These firms present SRIs with a dilemma. While they do engage in activities which are considered socially "good," they also do things which are perceived as "bad." Thus, they leave SRIs with an ambivalent feeling about their social record.

(4) UNDESIRABLE: Companies in this sector are perceived as engaging in "bad" practices, while not doing the things which would counter these actions. They are the "rotton apples" in the corporate barrel.

It is thus apparent that good companies (firms which would warrant SRI investment) fall into either the "affirmative" or "avoidance" categories. SRI investments in the former will be called "affirmative investments" and in the latter "avoidance investments." No empirical evidence exists regarding SRI preference for affirmative versus avoidance investments.

In the following section, a study designed to explore these issues is described. The focus of the study is threefold: first, to explore who SRIs are by identifying their demographic characteristics and comparing them to other investors; second, to examine whether socially responsible investment is an extension of the SRI lifestyle or a manifestation of he "guilty yuppie" syndrome through analsysis of SRI attitudes and behaviors; and third, to determine the preferred investment screening strategy of SRIs (affirmative versus avoidance) by determining what SRIs consider to be socially responsible corporate behavior.


To explore these issues, a mal survey of individual investors in socially screened mutual funds was conducted in the spring of 1988. The mailing list was obtained from two large socially screened mutual funds, the Calvert Social Investment Fund (Washington, DC) and the Working Assets Money Fund (San Francisco, CA). From the combined mailing lists of these funds, a sample of 4,000 individual investors was randomly selected.


Based on a literature review and discussions with experts in the area of socially responsible investing, a preliminary instrument is prepared. It is tested on randomly selected students and market research experts. Comments from both groups are incorporated into the final instrument, a questionnaire incorporating both open-ended and Likert-scaled questions. Respondents are asked how they define socially responsible corporate behavior, what financial performance they expect from their socially responsible investments, and what impact they expect their investment decisions to have on society. They are also asked about their financial portfolio and the percentage of it invested using a social screen. Finally, there is a section measuring demographics.

Response Rate

Of the 4,000 questionnaires mailed, 1,493 (37 percent) are returned. To check for nonresponse bias, the demographic profile of respondents is compared to that found in an in-house study of the same investors conducted a year earlier by one of the research sponsors. No significant differences are found. This suggests a low probability of nonresponse bias.


Three main issues are investigated from the data collected: demographics of SRIs, their attitudes and behavior, and their perceptions of corporate behaviors.

Demographics of the Socially Responsible Investor

Compared with a 1986 study (Investment Company Institute 1987) of the general population of mutual fund investors, the age distribution of SRIs tends to be younger than the general mutual fund investor (MFI) population. The median age of the SRIs is 39 years compared with 52 for MFIs. The SRIs have lower median household annual incomes of $39,600 compared with $46,400 for MFIs. This difference may be related to the lower median age of the SRIs. Socially responsible investors are better educated than MFIs with 60 percent of SRIs having graduate degrees compared with 22 percent of MFIs. Regarding employment, 81 percent of SRIs are in white-collar jobs compared with 63 percent of MFIs. Only 6.5 percent of SRIs are in blue-collar jobs versus 17 percent for MFIs. The balance in both groups are retirees. More detailed profiles of SRIs and MFIs are in


Table 1. In summary, SRIs are younger, better educated, but less affluent than the general mutual fund population. Except for income, this corresponds to Murphy's description of the socially concerned consumer (1978).

SRI Attitudes and Behavior

SRI attitudes are examined via Likert-scaled statements (1 = strongly agree to 5 = strongly disagree). SRIs tend to be somewhat risk averse (3.2) when asked if they are "willing to take investment risks in the hopes of bigger gains." SRIs agree strongly (1.4) with the statement "the philosophy and activities of the organizations I invest in are important factors in my investment decisions." They also feel


very strongly (1.3) that "investments of concerned citizens can have an impact on society." SRIs are somewhat ambivalent (3.0) about "living a full life now than saving up a lot money for the future." While it is suspected that SRIs would be willing to forego some amoung of return on their investment to support social causes, they tend to agree (2.5) with the statement "I expect my socially responsible investments to pay off as well as other types of investments."

To examine to what extent the attitudes of SRIs translate into actual behavior, respondents are asked what percentage of their financial portfolio is invested in "funds whose stated objectives are investment in socially responsible companies." The average is 49 percent. This represents a strong commitment by SRIs to "put their money where their heart is." An interesting question is whether socially responsible investing is a unique activity or one of a host of socially responsible activities of SRIs. To investigate this, SRIs are asked to indicate which of a list of "socially responsible activities" they "engage in on a regular basis." The results are in Table 2 and indicate a very active group of individuals. SRIs are very involved with cause-related groups: 88 percent donate money to such groups and almost half (48 percent) volunteer time. This profile of SRIs lends support tot he hypothesis that socially responsible investment is another activity in a specific type of lifestyle. It is also interesting to note that only a small number of SRIs hold credit cards of a cause-related group (so-called "affinity cards"), a point that such groups and their associated banks might want to consider.

Determinants of Socially Responsible Corporate Behavior

In order to investigate what the SRI perceives as responsible corporate behavior, respondents are asked to list "what factors are most important in determining whether a company's behavior can be considered socially responsible." The responses are classified into six issue groups: environment, labor relations, military, marketing and finance, politics, and individual rights. Within each of the six categories, specific behaviors are evaluated by a panel of three judges as to whether they are negative activities consumers do not want the firm engaged in (avoidance) or positive activities the firm should be practicing (affirmative). Table 3 lists the total mentions for each of the six issue categories, broken down by affirmative and avoidance behaviors with examples of each.

The two categories most frequently mentioned are environment and labor relations (28 percent each); the fewest number of mentions are in the individual rights area. Broken down by affirmative and avoidance issues, the overwhelming majority of responses (83 percent) relate to avoidance activities: "bad" things the firm should not do. This trend holds across all categories except for marketing and financial issues. In this area, respondents frequently mention the types of products the firm should be producing (e.g., "safe products"). Nevertheless, given the preponderance of avoidance behaviors mentioned across most categories, it appears that avoidance issues are more salient than affirmative practices when investors scrutinize companies for socially responsible actions.


This study attempts to shed light on the identities, attitudes, and behavior of SRIs. SRIs are younger and better educated in comparison both with other investors and the general population. These findings are consistent with findings on socially responsible consumers (Murphy 1978), although they differ from studies which only examine


concern for social issues, not behavior (Davis 1982; Himmelstein and McRae 1988; Knoke 1979). Those studies are inconclusive regarding the link between socioeconomic status and concern for social issues. Possibly, the diference between expressed concern and actual behavior is attributable to respondents providing socially desirable answers to attitudinal measures.

Clearly, the average SRI is an activist; this is manifested in the SRI's activities and affiliations with cause-related groups. This suggests that socially responsible investment is an extension of the SRI's way-of-life, not an activity meant to compensate for an otherwise hedonistic lifestyle. The finding helps to explain the somewhat surprising result that SRIs are not likely to forego a higher return on their investment in return for a social screen. That tradeoff would be most acceptable to investors who view socially responsible investment as a form of charitable donation. A key implication is that companies seeking investments from SRIs should not be fooled into thinking that SRIs will accept low returns on their investments in exchange for social responsibility. Managers of socially screened mutual funds appear to realize this. One study shows that in 1988, eight of the total of 12 socially screened funds (which are members of the Social Investment Forum, the industry trade group) did better than both the total return on the S&P 500 index and the average return for all general equity funds (Stevens 1988). More recent data show that the return on Calvert's Equity Portfolio for the year ending March 31, 1990, was 17.92 percent; Pax World Equity Fund yielded a return of 19.05 percent (Moore 1990). These returns are considerably higher than the equity fund average of 13.33 percent reported by Lipper Analytical Services (Moore 1990).

As criteria to gauge corporate social responsibility, SRIs tend to cite "bad" things they want firms to avoid rather than "good" practices to be embraced. This does not mean that corporations should not implement affirmative actions, but it is imperative that they avoid practices that potential investors who use social screens would find unacceptable and communicate this avoidance to potential investors. Note that classification of "affirmative" and "avoidance" behavior changes over time; practices once considered affirmative are now expected to be part of normal business practice. For example, while it was once considered unusually progressive for firms to pay women and minorities the same salary as men (affirmative action), today, salary discrimination is a practice to be avoided. Note that only in the finance and marketing category to affirmative mentions outnumber avoidance mentions. This category reflects relations among businesses (e.g., takeovers) or between business and customers (e.g., deceptive advertising). Could this be an indication that society has fewer commonly accepted norms in this area?

Investors may be considered as operating on two scales: one referring to their desired level of return and the other their expectation of corporate social responsibility in terms of "affirmative" and "avoidance" behaviors. SRIs may view affirmative behaviors as more costly to the firm than avoidance behaviors. The data suggest that SRIs do not want to sacrifice return on their investments. Therefore, their tendency toward citing avoidance behaviors may be a compromise on their part, a somewhat unconscious attempt not to saddle the firm with extra costs while still asking it to be socially responsible. An alternative explanation is that avoidance behavior (e.g., polluting) tend to be more newsworthy and get more publicity than affirmative behaviors (e.g., child care centers). Thus, these activities may be more on the minds of SRIs when asked to describe a socially responsible company. Companies should be more aware of the need for promoting their affirmative behaviors to give them a competitive edge in attracting investments.


While this study provides a good initial picture of the SRI, some cautions are in order. First, more data are needed on SRIs, the general population, and other investors. Clearly, SRIs are very active and differ from other investors and the general population. However, it is possible that the mailing drew out SRIs with stronger attitudes. Before drawing broad conclusions about the public view of corporate social responsibility, the study should be repeated with a representative sample both of the general population and of investors whose concerns are not guided by social concerns. Second, findings on what SRIs view as socially responsible corporate behavior are based on open-ended questions. The responses are then categorized into issue groups and by their avoidance/affirmative nature. Although the coding is done systematically, coding open-ended questions is subjective. Moreover, the conclusions are based on simple counts of issue mentioned, without measurement of belief strengths. A useful extension would be to measure the relative importance of the issues cited and to study the decision process of SRIs. An index of concern for social responsibility in investing would also be useful. This could be used for segmenting groups of potential SRIs, much as indices of ecological responsibility are used. This index could be validated by comparing groups of known SRIs with investors in general funds.

The other side of the picture, the socially responsible corporation, deserves more systematic study. The notion that doing "good" means sacrificing financial return is questionable. Recent reports (Lavine 1986; Stevens 1988) suggest the opposite: firms which do "good" can also do "better." Is there any consistent relationship between socially responsible behaviors and financial performance in the long term? A growing body of literature on business ethics calls for a research agenda (Kahn 1990) and points to its importance in management thinking. Demonstrated relationships between ethics and profitability would enhance the ethical dimension among practitioners. Another important area of investigation is the marketing of "good" behavior. Should socially responsible corporate behavior be marketed to customers, shareholders, employees, and the general public? What approaches would be most effective? What issues should be emphasized? These questions are related to the larger issue of corporate image: how does it develop and change over time? The authors hope this paper provides a benchmark and stimulates further research on SRIs and their relations with interested corporations.


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Barry N. Rosen is Associate Professor, Dennis M. Sandler is Assistant Professor, and David Shani is Assistant Professor, Marketing Department, Baruch College, the City University of New York, New York, NY.
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Author:Rosen, Barry N.; Sandler, Dennis M.; Shani, David
Publication:Journal of Consumer Affairs
Date:Dec 22, 1991
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