BAFN204: Evaluating Socially Responsible Investment Performance

This report provides a comprehensive analysis of Socially Responsible Investing (SRI) compared to conventional (non-SRI) investments, fulfilling the requirements for the BAFN204 Portfolio Management assignment. It begins with an executive summary and introduction, outlining the principles of SRI. A literature review contrasts the performance of SRI and non-SRI investments based on existing studies. The analysis section uses data from the S&P 500 Environmental & Socially Responsible Index and the S&P 500 to compare risk and return, utilizing metrics like Sharpe ratio. The conclusion indicates that SRI offers higher returns with lower risk compared to non-SRI, supported by the Sharpe ratio analysis, suggesting a greater potential for abnormal returns. The report highlights the growing investor preference for companies with strong Corporate Social Responsibility practices. Desklib provides access to similar solved assignments and resources for students.

Running head: BAFN204
BAFN204
Name of the Student:
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Authors Note:

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Table of Contents
Executive Summary:..................................................................................................................2
Introduction:...............................................................................................................................2
Literature review:.......................................................................................................................3
Analysis:.....................................................................................................................................4
Conclusion:................................................................................................................................6
Reference and Bibliography:......................................................................................................7

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Executive Summary:
Social Responsibility is a term that is used to define an activity that is done to benefit
the society. This activity is done by the businesses regarding balance their activities that are
generating profits. Recently, in near decades rate of socially responsible investment was seen
rising. Business must comply with corporate social responsibility in order to safeguard their
business activity. Success on a larger scale is also depended on how a business is socially
responsible. In order to understand and get a clear picture regarding the social responsibility
and sustainability in businesses. The report is designed to understand and evaluate the
relationship with stakeholders, investors concerning SRI. While evaluating the SRI and Non-
SRI index it was seen that the investments of SRI had a higher percentage. The Sharpe ratio
has been used to derive at the accurate decision regarding the percentage of return.
Introduction:
The term social responsibility refers to the social activities done by the company as a
part of their social corporate responsibility and the same benefits the society at a larger
section. The social responsibility activities of the company involve investing some portion of
the company’s profit into the social activities and overall development of the society. The
social responsibility is an important initiative taken by the organization at a large to benefit
the society.
Social responsibility is the idea that businesses should balance profit-making activities with
activities that benefit society. A socially responsible investment is an investment that is
considered socially responsible because of the nature of the business the company conducts.
It is the most common for businesses that want to be socially responsible, avoid investing in
companies that produce or sell addictive substances. In contrast to that, they seek out working

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with companies that are involved in environmental sustainability and alternative energy/clean
technology efforts. Ethically or socially responsible banks and investment funds consider the
social and environmental impact of their investments and loans. Institutions like this will
usually have a strong attitude towards animal welfare, climate change and Human rights.
Social Responsibility is the idea that businesses should balance profit-making activities with
activities that benefit society (Ransome and Sampford 2016). There has been considerable
growth in socially responsible investments (SRI) in recent decades Transparency is key with
these institutions, as they always make sure it is clear to investors and customers, which
companies they are involved or not involved with.
Literature review:
In recent times, the organization and companies have increased the social activities of
the company in the form and as a Socially Responsible Investment. It is crucial to note that
while evaluating the trend between 1995 and 2012 the net amount, which was assets, which
was under management in the socially responsible investment strategies deployed which
grew about 486% in the trend period. In the same time, it should be noted that the asset under
management, which includes the conventional and the non-socially responsible investments,
grew up by 376%. However, it is crucial to note that the total assets under management of the
company comprised of approximately 11% (Envestnet.com. 2018).
The increase in the Socially Responsible Investment done by the company depends
upon the policies and the guidelines of the company and the way for dealing the same.
However, it should be noted that the SRI and Non-SRI Fund performance for analysis
purpose reviewed were having same mean and the final review drawn (Crifo and Mottis
2016). The analysis was based on the fact that the average socially conscious investment
done by the company does not affect and influence the portfolio performance of the company

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at a large and can be done by the company. The investments done in the form of thee socially
responsible investment does not constrain the strategies that are to be deployed by the
management of the company and the same should not affect the financial performance of the
company. The SRI and Non SRI fund performance evaluation helped us get a overall
evaluation and the research reviewed showed that in several cases the SRI investment fund
has tried to outperform the Non SRI Investment fund and the same has not affected the
performance of the company. Thus, it should be noted that the sustainable form of investing
for the institutional investors and the investment considers different criteria such as
environmental, social and corporate governance. Thus, evaluating and incorporating these
factors in the long term can create long term growth and goodwill for the company (Sparkes
2017).
Analysis:
Particulars Return_S&P 500 S&P 500 Environmental &
Socially Responsible Return
Average 0.0584% 0.0588%
Standard deviation 0.89% 0.88%
Variance 0.01% 0.01%
Annualised variance 0.020003169 0.019418755
Annualised standard deviation 14.14% 13.94%
Annualised Return 14.59% 14.69%
Risk free rate 2.75% 2.75%
Sharpe ratio 83.74% 85.71%

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The above table relevantly indicates the overall average rate of return and standard
deviation, which has been provided by the SRI and non-SRI Index. The valuation has
relevantly indicated that the overall performance of the both the index are calculated for the
past eight years, where the data has been taken from 10/1/2010 to 8/14/18. The average
returns provided from the Non-SRI index was relevantly indicated an average annualised
return of 14.59%, while the SRI Index has depicted a return of 14.69%. The overall
performance of the SRI index is relevantly higher than the Non-SRI index, which is directly
indicating the deteriorating performance of the index. From the overall analysis it could be
detected that the non-risk index is relevantly having higher risk and lower returns in
comparison to the SRI index. This relevantly indicates that the non-SRI index has higher risk
from investment, which can negatively affect their overall exposure. Lorig and Sircar (2016)
mentioned that with the use of SRI stocks the overall investors are relevantly investing in
organisations, which comply with the social responsibilities and have high level of concern
for the environment. Furthermore, the analysis also helps in detecting the overall risk level,
where the non-Risk index has higher risk value than the SRI index, which indicates the level
of concern that needs to be maintained by the investors.
From the relevant evaluation it can be detected that the risk attributes of Th SRI index
are the level of 13.94%, while the Non-SRI index has the risk level of 14.14%. This
relevantly indicates the overall decline in performance of Non-SRI index in terms of SRI
Index. The overall returns of SRI index are relevantly higher at the values of 14.69%, while
the Non-SRI index has a return of 14.59%. Therefore, it could be understood that the SRI
index has higher return generation capability than the Non-SRI index. Jansson and Biel
(2014) mentioned that with the use of risk and return capability investors are able to evaluate
the investment opportunity and generate high rate of return from investment.

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The overall evaluation of the data for the past 8 years has relevant indicated that SRI
has higher return, while risk is low in comparison to Non-SRI. From the evaluation it can be
detected that the current performance and returns of the Non-SRI and SRI stock is relevantly
not that different, which mainly indicates the use of different level of Sharpe ratio formula.
The calculation indicates that Sharpe ratio of SRI is at the levels of 85.71%, while the Non-
SRI values is at the levels of 83.74%. Therefore, it could be understood that the SRI index
has a higher change of obtaining abnormal returns in comparison to Non-SRI index.
Conclusion:
In the past four decades, Social Responsible Investing (SRI) has consciously grown
worldwide in regard investors. In comparison to conformist investment, modern portfolio
supporters found that the development strange, as the inhibited investment universe, that SRI
are subject to reduce the opportunity of diversification as it becomes the cause of lower risk
that is adjusted to returns. The report discussed upon that how and which factors affect the
performance of SRI. The report has observed by scrutinizing the qualified performance of
funds related to SRI in comparison to conventional funds. The report has been divided into
two parts the first part is literature review and the second part is the analysis part in which the
performance of SRI and Non-SRI Index has been performed. The performance is measured
through standard deviation and average method in order to determine the risk return attributes
of the index. The findings concluded that SRI has a higher return with lower risk in compare
to Non- SRI index. In the analysis, Sharpe ratio has been used as a tool to evaluate the risk
and return ratio. The high Sharpe value of SRI Index directly indicates the high chance of
investors getting abnormal returns from investment. Today, economist might not ever find the
true monetary effect of the beliefs. The uncluttered and practically indiscriminating approach,
the merchandize has to the perception, makes the results from the studies on the pitch

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uncertain. Through this report, it is concluded that the investors are more prone and have a
reliability towards investing their funds to those stocks of the companies who follow
Corporate Social Responsibility.
Reference and Bibliography:
Crifo, P. and Mottis, N., 2016. Socially responsible investment in France. Business & Society,
55(4), pp.576-593.
Envestnet.com. (2018). How and Why SRI Performance Differs from Conventional
Strategies. [online] Available at: http://www.envestnet.com/files/Campaigns/PMC-SRI-
TrustedAdvisor/images/PMC-SRI-0914.pdf [Accessed 14 Oct. 2018].
Jansson, M. and Biel, A., 2014. Investment Institutions' Beliefs About and Attitudes Toward
Socially Responsible Investment (SRI): A Comparison Between SRI and Non‐SRI
Management. Sustainable Development, 22(1), pp.33-41.
Liu, G., Zhang, J. and Tang, W., 2015. Joint dynamic pricing and investment strategy for
perishable foods with price-quality dependent demand. Annals of Operations
Research, 226(1), pp.397-416.
Lorig, M. and Sircar, R., 2016. Portfolio optimization under local-stochastic volatility:
Coefficient taylor series approximations and implied sharpe ratio. SIAM Journal on Financial
Mathematics, 7(1), pp.418-447.
Mao, H., Carson, J.M., Ostaszewski, K.M., Luo, Y. and Wang, Y., 2016. Determining the
Insurer's Optimal Investment and Reinsurance Strategy Based on Stochastic Differential
Game. Journal of Insurance Issues, pp.187-202.

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Nguyen, T.T., Gordon-Brown, L., Khosravi, A., Creighton, D. and Nahavandi, S., 2015.
Fuzzy portfolio allocation models through a new risk measure and fuzzy sharpe ratio. IEEE
Transactions on Fuzzy Systems, 23(3), pp.656-676.
Ransome, W. and Sampford, C., 2016. Ethics and socially responsible investment: A
philosophical approach. Routledge.
Revelli, C. and Viviani, J.L., 2015. Financial performance of socially responsible investing
(SRI): what have we learned? A meta‐analysis. Business Ethics: A European Review, 24(2),
pp.158-185.
Sparkes, R., 2017. A historical perspective on the growth of socially responsible investment.
In Responsible investment (pp. 39-54). Routledge.
Weber, B., Alfen, H.W. and Staub-Bisang, M., 2016. Infrastructure as an asset class:
investment strategy, sustainability, project finance and PPP. John wiley & sons.
Zeng, Y., Li, D. and Gu, A., 2016. Robust equilibrium reinsurance-investment strategy for a
mean–variance insurer in a model with jumps. Insurance: Mathematics and Economics, 66,
pp.138-152.