SRI: The future of pension funds

Abstract

The purpose of this thesis is to determine if it is attractive for pension funds to continue to focus on becoming and remaining socially responsible investors. This has been done by analyzing factors that influence the decision both financially and socially. In 1980 the first socially responsible index was created, this was the beginning of a new era, which instead of purely financial return is taking other issues into consideration. Since then the focus on corporate social responsibility (CSR) and socially responsible investments (SRI) has steadily increased, and is now a major focus of many pension funds. CSR is the first issue needed to be evaluated in order to understand the various options an investor wishing to invest socially responsible has. The next step for the investor is to determine if the particular company follows the SRI policies of the investor. This evaluation is part of the creation of a SRI portfolio. The focus on CSR and SRI is intense due to many factors; however, the general interest of the public is playing a very large role in the continuous development of these two issues. The increased focus is being seen in pension funds; they have made it very far in the development of becoming socially responsible investors, and are often viewed as pioneers in this field of investment. Nevertheless, for an investor to view SRI as attractive a financial benefit is needed, the financial section of the thesis analyses the performance of SRI stocks versus non-SRI stocks in a ten year period as well as during the recent crisis. Additionally several indices are evaluated for the same time periods to test if socially responsible indices are able to outperform the S&P500 index. The results from this study indicate that during the time of a crisis there seems to be a benefit in investing in SRI. However, during the longer time period no such results are visible. The future of SRI is affected by the performance of the stocks; however, as the first sections of this thesis indicates the interest and commitment of companies is of equal importance.