The Business of Virtue: Evidence from Socially Responsible Investing in Financial Markets

Abstract

Using the mainstreaming of socially responsible investing (SRI) as our empirical context, we show that as the divestment movement in the late twentieth century got institutionalized by being incorporated as a business strategy into more mainstream financial instruments like mutual funds, the prior meanings and categorical definition of ethical investing became ambiguous due to fuzzy boundaries, duality of virtue inherent in the portfolio targets, and exercise of discretion by portfolio managers. We find that increased heterogeneity in standards led to greater ambiguity about who belongs to a category, and fund managers adopted distinct measures-based, values-based and expertise-based approaches to resolve this ambiguity. One consequence of such ambiguity is that individual self-expression, self-consciousness and agency that are central in such movements become appropriated by discretionary and meaning-making work at the institutional level.

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Funding

This study was funded by the Kellogg School of Management at Northwestern University.

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Correspondence to Saheli Nath.

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Appendix: Exhibits

Appendix: Exhibits

See Exhibits 1 and 2.

Exhibit 1
figure2

Sources Changing Times, Sept 1989, p. 79; Mother Jones magazine, June 1985, p. 7/May–Jun, 1998, p. 6

In the 1980s, socially conscious funds needed to emphasize values and performance for legitimacy.

Exhibit 2
figure3

Source Sherwood (1983)

Demand side dynamics drove the supply of socially responsible funds.

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Nath, S. The Business of Virtue: Evidence from Socially Responsible Investing in Financial Markets. J Bus Ethics 169, 181–199 (2021). https://doi.org/10.1007/s10551-019-04291-9

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Keywords

  • Financial markets
  • Socially responsible investing
  • Categories
  • Institutionalization