The 2008/09 World Financial Crisis underlined the importance of social responsibility for the sustainable functioning of economic markets. Heralding an age of novel heterodox economic thinking, the call for integrating social facets into mainstream economic models has reached unprecedented momentum. Financial Social Responsibility bridges the finance world with society in socially conscientious investments. Socially Responsible Investment (SRI) integrates corporate social responsibility in investment choices. In the aftermath of the 2008/09 World Financial Crisis, SRI is an idea whose time has come. Socially conscientious asset allocation styles add to expected yield and volatility of securities social, environmental and institutional considerations. In screenings, shareholder advocacy, community investing, social venture capital funding and political divestiture, socially conscientious investors hone their interest to align financial profit maximization strategies with social concerns. In a long history of classic finance theory having blacked out moral and ethical considerations of investment decision making, our knowledge of socio-economic motives for SRI is limited. Apart from economic profitability calculus and strategic leadership advantages, this article sheds light on socio-psychological motives underlying SRI. Altruism, need for innovation and entrepreneurial zest alongside utility derived from social status enhancement prospects and transparency may steer investors’ social conscientiousness. Self-enhancement and social expression of future-oriented SRI options may supplement profit maximization goals. Theoretically introducing potential SRI motives serves as a first step towards an empirical validation of Financial Social Responsibility to improve the interplay of financial markets and the real economy. The pursuit of crisis-robust and sustainable financial markets through strengthened Financial Social Responsibility targets at creating lasting societal value for this generation and the following.
In recent decades Socially Responsible Investment (SRI) emerged into an en vogue investment philosophy. Originating from religious and moral considerations, SRI evolved in the wake of socio-political deficiencies and corporate social conduct. In the global rise of financial social conscientiousness, differing national legislations and regulatory traditions have led to various SRI practices, which are harmonized by the United Nations (UN). Building on the historic advancement of Financial Social Responsibility in the wake of socio-ethical deficiencies, this paper highlights the future potential of SRI in the aftermath of the 2008/09 World Financial Crisis as a means to avert economic market downfalls. During the current financial market reform, additional micro- and macro-research on financial social conduct could foster the idea of Financial Social Responsibility and aid a successful implementation of SRI.
Julia Puaschunder is a faculty associate at the Center for the Environment at Harvard University. Download PDF