Socially responsible investing (SRI) is a stakeholder theory approach that covers financial and non- financial criteria to determine what assets a company should invest in or not (Guay, Doh et al. 2004). With the aid of different criteria, investors have the choice of divers strategies to define whether an investment is socially responsible or not.
The Forum for Sustainable and Responsible Investment gives the following definition: “SRI is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact” (USSIF 2017). As this definition suggests, the firm’s focus should be on assets, which are both, ethical and social, correct, and still be able to make profit. It is controversial that it is possible to combine SRI and still have positive returns. Some theories suggest that transaction costs increase and the portfolio’s diversification decreases, which leads to a decrease in profits (Luther, Matatko et al. 1992). Other however argue that a social responsible way to invest increases profits because the firm has less risk to suffer from lawsuits and customers’ boycotts (Solomon and Solomon 2003). Despite this ongoing debate, there is a significant rise in SRI worldwide.

The aim of this coursework is to explain SRI and its recent rise and why investors are interested in socially investments. Moreover, this work critically analyses different SRI strategies to understand how firms choose their investments.

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