Is Socially Responsible Investment Outperforming Conventional Investment or Not? A Meta—Analysis

This meta-analysis provides an overview of the current literature on Socially Responsible Investment (SRI). It presents the underlying motivation, history and current best practices. The in-depth analysis examines a large body of research and addresses two key issues. The first objective was to determine the relative performance of SRI vehicles compared to their conventional benchmarks. The analysis revealed a lack of consensus in previous research. Some studies argue that SRI funds perform as well as, and/or worse than conventional benchmarks, while others challenge these findings. The second objective was to analyse the impact of corporate social responsibility on the company’s financial performance. Here, the analysis covered almost four decades, from the 1980s to 2020. It examined more than 100 academic studies, with an overall sampling period that ran from 1960 to 2019. The results provide a solid platform for future work. The study provides researchers with a well-documented, structured overview of the existing literature on SRI, and identifies gaps that could be filled by future studies.


Introduction
The recent financial crisis has highlighted a growing preference for responsible How to cite this paper: AitElMekki, O. (2020). Is Socially Responsible Investment Outperforming Conventional Investment or Not? A Meta-Analysis. American Journal of Industrial and Business Management, 10, marises the findings, and offers an overview of potentially interesting future research topics.

Historical Development
Even in ancient Rome, wise men sought to distinguish themselves in all aspects of their lives, including trade. It could be said that the Bible, and the Torah established the first rules for ethical investment. In the 7 th century, the Quran (the sacred text of the Muslims) and the Hadith (the record of the traditions or sayings of the Prophet Muhammad) are an extension of the same philosophy. Islam provides clear guidance for commercial life, in the form of ethical stipulations (sharia or Islamic jurisprudence Al-Fiqh). In the middle of the 18 th century, the Methodist Church sought to do the same (Peifer, 2012). As early as 1948, the Methodist Church and the Church of England in the United Kingdom set up investment portfolios that took into account ethical constraints (Bengtsson, 2008). But the first, true SRI fund was the Pioneer Fund of Boston in 1928, in the United States, founded by a church group (Kirchhoff, 2008). In the 1900s, the equity market began to focus more on the religious requirements of the Islamic community, for example, by excluding specific sectors from investment portfolios, notably practices such as the sale of alcohol, tobacco, sex, pork, usury, gambling, etc. (Warde, 2000;El-Gamal, 2006;Ariff & Iqbal, 2011;Iqbal & Mirakhor, 2011;Ayub, 2013;Alim, 2014;Visser, 2019). At the same time, concerns have grown regarding environmental issues (Fung et al., 2010;Bilbao-Terol et al., 2016). Investment decisions initially followed a simple triangular path of liquidity, risk and return. Today, a growing number of investors use the magic square: liquidity, risk, return and sustainability. This can be seen as an improvement to the neoclassical homo economicus, who is motivated solely by economics (Duttweiler, 2011;Bernstein, 2020).

Definitions and Terminology
There is great heterogeneity in the current academic literature regarding the terminology to be used to refer to the type of investment discussed in this study. Chatzitheodorou et al. (2019) conducted a literature review focused on the issue of the terminology used to define this type of investment, and observed that the majority of the literature focuses on SRI performance compared to conventional investment. The authors argued that, despite the plurality of terms (e.g. sustainable, ethical, environmental and social) that have been invented to explain the reasoning behind SRI, they all relate to an overarching definition. Specifically, they are based on the assumption that SRI undermines the precision and robustness of existing metrics, as only some aspects of global performance are assessed. Although a consensus has not yet emerged in the literature, typical terms are SRI, social, sustainable, green, ethical or alternative investment (Nilsson, 2008). Although there are inconsistencies in their use, some authors (Guay et al., 2004;Arjaliès, 2010;Bilbao-Terol et al., 2016) consider SRI definitions to be consistent to the extent that they refer to the integration of non-financial concerns, such as environmental, social or governance, into investments. This paper adopts the most widely-used term-SRI. While SRI defines the active task of investing responsibly, the term corporate social responsibility (CSR) is used in the academic literature to describe a company's ethical and responsible behaviour (Whitehouse, 2006). It considers that firms should combine environmental and social questions into their corporate governance. By applying CSR policies, companies seek to attract CSR investors (Teoh & Shiu, 1990). Conversely, shareholders can use their voting rights to steer the company's management in a more CSR-oriented direction (Griseri & Seppala, 2010;Glac, 2014).

SRI Performance
When it comes to estimating the performance of SRI compared to conventional funds, the literature reports mixed findings. At the same time, there is a large body of research on the relationship between financial performance and SRI.
From a technical point of view, two major orientations can be adopted to assess the financial performance of SRI: (1) the comparison of the financial performance of SRI funds with conventional counterparts that have the same characteristics with respect to capitalisation, time horizons, economic zones, etc.; and (2) the comparison of the financial performance of SRI funds with the market, using a model. Some studies report the results of regression analyses, seeking to provide an explanation for the factors that influence returns, including ethical commitment.
One-, two-and four-factor models, such as the Capital Asset Pricing Model (CAPM), the Fama-French and Carhart models have been used. The CAPM considers market risk (beta) as an explanatory factor for asset price movements (Markowitz, 1952). Fama & French (1993) added two other factors to the CAPM: size and book-to-market value. The Carhart model is based on the three-factor Fama-French model, but adds a fourth factor. The latter captures the momentum anomaly, i.e. the difference in return between winners and losers over the past 12 months (Jegadeesh & Titman, 1993;Carhart, 1997). A comparison of SRI with conventional funds must ensure that they have similar characteristics, to minimise size or style effects when comparing returns. Various comparison methods are in use, which differ in terms of: (1) the choice of performance measures; and (2) benchmarks. These two factors are very important in determining the performance of SRI investments and their conventional counterparts. It should be noted that many studies use more than one performance measure.
Other researchers have adopted a different approach, with the same goal. Thus, some studies use the Treynor ratio (1965), Sharpe's ratio (1966), Jensen's alpha (1967), or Tobin's Q (1969). Another practice is to use the excess standard deviation adjusted return (eSDAR). This was applied by Statman (2000) which estimated the additional return at a specific point in time from a portfolio, using the same risk rate as the benchmark.
One of the main objectives of performance measurement is to find an appropriate benchmark against which to compare a portfolio. In the world of market finance, this concerns the main sustainability indices, the selection methods used, and the benchmarks underlying them. The most well-known and important indices are: (1) KLD's Domini Social Index; (2) the Dow Jones Sustainability Index (López et al., 2007;Searcy & Elkhawas, 2012), both based in the United States; and (3) the FTSE4Good Index, based in the United Kingdom (Martin, Curran, & Moran, 2007;Collison et al., 2008Collison et al., , 2009). The Domini 400 Social Index (sometimes called the KLD 400 Index, as it was established by Kinder, Lydenberg & Domini) is one of the best-known social indices (Corson & Dyck, 1992;Sauer, 1997). Launched in March 1990, it is considered to be the first general stock market index in the United States designed to measure the performance of portfolios subject to multiple religious (notably, Catholic) and social constraints (Kurtz & di Bartolomeo, 2005;Statman, 2006;Ramchander et al., 2012).

Does SRI Out-(Under-)Perform Conventional Investment?
Research conducted over the past four decades clearly demonstrates a growing interest in SRI. It emerged from the meta-analysis that the vast majority of published papers relate to the measurement of SRI performance. This can be explained by the fact that this area of research is very much focused on quantitative data, as well as its accessibility. More recently, the SRI literature has moved away from performance measurement, to focus on other, qualitative, variables. The latter includes a diverse range of factors. Interest in stakeholders, ESG criteria, sustainability, activism, etc. has grown considerably over this time. It is not surprising that more than 100 academic studies, including 70 research papers, in the dataset were dedicated to the measurement and comparison of SRI fund performance with a benchmark.
In the world of responsible finance, the literature lacks a consensus regarding the measurement of the performance of SRI funds compared to conventional funds, market indices or benchmark funds. This meta-analysis only focuses on empirical studies of market data, and not those based on accounting data, or those that present a theoretical model. Specifically, the dataset consists of 103 empirical studies of SRI; of these, 33 identify relationships between a specific behaviour that is perceived as responsible (or not), and the financial performance of a single firm. The aim is to show whether CSR behaviour is financially beneficial for the firm.
The overall analysis focused primarily on studies published during the past 40 years (between the 1980s and 2020), with a 60-year sample period running from The dataset of studies can be categorised as a function of their findings regarding the comparison of SRI performance with benchmarks. Indices or ethical funds may underperform, outperform or perform equally well as conventional funds and indices, or performance can be considered as a function of market conditions. As shown in Table 1 and Figure 1, of the 70 studies that compare the performance of SRIs with benchmarks, 25 conclude that SRIs perform in the same (or almost the same) way as conventional benchmarks, 12 find underperformance, 23 find outperformance and, finally, 10 attribute SRI performance to market behaviour during crisis and non-crisis periods. The meta-analysis verified these results, and concluded that data followed a normal distribution, with a coefficient of determination (R 2 ) equal to 0.82. Figure 1 shows the articles that were reviewed, highlighting the four relationships.
Sampling periods differed for each study. In articles that reported the underperformance of SRIs, the mean sampling period was 10 years. The shortest period, two years (1999)(2000)(2001), was recorded by Geczy et al., (2005), and the longest, 20 years , was reported by Kiymaz (2019a). With respect to papers that demonstrated similar performance, the mean sampling period was nine years; the shortest, two years (2000)(2001)(2002), was reported by Schröder (2004) and the longest, 22 years , was noted by Mill (2006). In contrast, studies found that SRIs outperformed their counterparts, the mean sampling period  O. AitElMekki was eight years; the shortest period, one year (1999), was identified in Epstein & Schnietz (2002) and the longest period, 23 years, was reported by two studies Grossman & Sharpe (1986) and Ibikunle & Steffen (2017). In the latter case, sampling periods were 1960-1983 and 1991-2014, respectively. These statistics were summarised in Table 2 and Figure 2. The full set of articles that made up  the dataset of this study, and that were not cited above, were reported in Figure  2 and Tables 3-5. Figure 2 presents the sampling period of each study as a function of the authors. Ten of the 70 studies attributed SRI performance to the market situation, economic conditions and crisis (or non-crisis) periods. An exception is Rathner (2013) which attributed it to survivorship bias, while Leite & Cortez (2015) and Trinks & Scholtens (2017) showed that SRIs performed well compared to their conventional counterparts in times of crisis, but underperformed in non-crisis periods. On the other hand, Omri et al. (2019) does not support this finding. Among the remainder of the articles, six studies (See Table 6) showed that all SRI funds outperformed conventional funds in booming economic conditions, while they underperformed during quiet periods. Table 3. Studies (25) demonstrating equal, or an insignificant difference in the performance of SRI compared to the benchmark.

Impact of ESG Criteria on Company Performance
As discussed earlier, most studies construct SRI portfolios and then compare them to a counterpart, conventional portfolio or index. However, another approach is to look at the value of a single company to determine the effects of socially responsible behaviour, most often referred to as CSR. There are two ways to measure the value of a company: using accounting data or market data. Most studies focus on market value, determined by the company's share price multiplied by the number of shares outstanding, as the aim is to determine the impact of CSR on both shareholder behaviour and profits. Heiduk & McCaleb (2014) and Gatti & Seele (2015) argue that there is a wide gap in the performance of CSR-aware European companies, compared to Asian and American companies. This is claimed to be due to differences in culture and history, as European investors seem to place higher value on SRI than Asian and American investors (Auer & Schuhmacher, 2016). There are two approaches to determining whether CSR companies are more valuable than conventional companies. For example, event studies have demonstrated that share prices rise when a company receives a social, environmental or governance award; conversely, if there is information or a scandal related to one, or a set of CSR criteria, share prices fall significantly. Even a simple, explicit commitment to ethical behaviour can have a positive effect on the company's financial performance (Kolk, 2016). Most event studies analyse specific CSR characteristics, such as social or environmental. A positive relationship has been demonstrated between a company's financial performance and the integration of environmental issues into its strategic planning (Shahzad et al., 2020). Furthermore, a positive relationship has been found between the level of environmental information provided by a company, and its financial performance. Other studies have looked at environmental relationships, and the relationship between financial performance and the treatment of stakeholders (such as society, government, customers, suppliers, shareholders, creditors, managers and employees).
This meta-analysis provides a good overview of the state of CSR. It examined 33 academic studies dealing with the topic that report different results. The selected studies were presented in Table 7 and Figure 3. Eighty-four per cent of studies find a positive correlation between financial performance and the adoption of ESG criteria, while the remaining 16% note a negative correlation. The overall, mean sampling period for all studies is around 7.5 years. Research that identifies a positive correlation has a mean sampling period of eight years; the shortest period, one year, was reported in six studies (see Table 7), and the longest period, 40 years , was reported by (Friede et al., 2015). With respect to studies that find a negative correlation, the mean sampling period is four years; the shortest period, one year (1986), was reported by (Boyle et al., 1997), and the longest period, eight years (2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010), was noted by (Humphrey et al., 2012). Full references for the articles making up the dataset, which were not cited American Journal of Industrial and Business Management

Conclusion
This meta-analysis outlined the reasons for the increased interest that institutional and private investors are showing in incorporating ethical concerns into financial decision-making. The analysis examined a large body of empirical research, and outlined the ongoing discussions in the academic literature regarding the performance of SRI investments. The findings indicate that the majority of the current academic literature reports that the performance of SRI funds is on par with conventional investments. At the same time, many studies show that SRI investments outperform conventional instruments, while others have found that they underperform. The analysis highlighted studies that sought to determine the relationship between a company's financial performance and its efforts to implement CSR policies. Overall, most studies found that the integration of ESG criteria has a positive effect on financial results.
This initial study could form the basis for future research. It deepens knowledge related to SRI investments and the ambiguities surrounding this increasingly Table 7. Studies (33) that report a relationship (or not) between ESG criteria and company performance.

Funding
This research did not receive any funding, either internal or external.
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