Semester 2 BAFN204: SRI and Conventional Investment Analysis

This report, prepared for the BAFN204 Portfolio Management course at Peter Faber Business School, analyzes and contrasts Socially Responsible Investing (SRI) with conventional investment strategies. The report explores the core differences between the two approaches, highlighting the significance of return on investment for conventional investors versus the community well-being focus of SRI investors. It delves into the varying decision-making styles, risk exposures, and market performance of each investment method. The analysis references academic literature to support its comparisons, ultimately concluding that while both aim to maximize shareholder value, SRI and conventional investments offer distinct approaches, with research indicating a preference for SRI in many cases. The report also references the importance of ethical considerations and community involvement in investment choices.

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Introduction
Investment is broadly referred to as the sacrifice of capital to an enterprise with the aim
of generating profit in the future since it takes time. It involves risk-taking as the present
allocation of funds is definite while the future gain is indefinite. The future returns could be in
the form of monetary gains or social benefits, often referred to as Socially Responsible Investing
(SRI). SRI is a practice that incorporates social and environmental goals into decisions involving
investment. It encourages joint practices that aim at promoting social responsibility and
commendable initiatives, for instance, shareholder advocacy and community investing. The logic
behind SRI is in consideration of both financial profit and responsible investments aimed at the
development of the society. SRI goals are based on issues with the environment, human rights,
involvement of the community and labor relations.
Literature Review
Over the past years, SRI has captured the attention of individual and private investors,
counting academics. While some scholars have argued that it is better to use SRI, others argue
that conventional methods of investment are superior. Research has been done on SRI trying to
understand whether it has more financial costs than conventional methods of investment, its
performance, and its effects on the financial or market performance of investment organizations
(Revelli 2017). Many studies have been done which have given reports on the link between the
financial performance of SRI and conventional investment. This study will be based on the
performance of SRI and conventional investments.
Comparison and Contrast

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Return on investment is more important for conventional investors than for SRI. In
addition to wealth creation, SRI investors are interested in returns that promote the well-being of
the community which implies that they are less value-oriented as opposed to conventional
investors who are self-oriented (Becchetti et al. 2015). Moreover, SRI investors use
perfectionism as a dominant style of decision-making while conventional investors use other
styles, for instance, value consciousness. The perfectionism style requires high standards of
investor and high expectations especially with regard to quality which is preferred by SRI
investors.
There are different levels of risk exposure to factors that are known between SRI and
conventional investors. SRI has a selective approach that restricts the sum of investment areas
causing bias and thereby increasing the possibility of risk (Revelli and Viviani 2015). This
means, therefore that SRI has a higher risk exposure than conventional investors. Additionally,
SRI performs better in limited market segments other than in global one compared to
conventional investments. Unlike SRI, conventional investment requires companies that have
good financial power (Wallis and Klein 2015). On common ground, both SRI and conventional
investments have the main goal which is to maximize the shareholder value.
Conclusion
The analysis shows that SRI and conventional investments are distinct approaches to
investment. Equally important, some research has shown a negative relationship between SRI
and conventional method of investment, while other studies have shown the outperformance of
SRI to conventional investment. Most research shows that SRI is preferred than conventional
investment. The reasons behind its preference give an understanding of the better investment
method based on the company.

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Bibliography
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.
Becchetti, L., Ciciretti, R., Dalò, A. and Herzel, S., 2015. Socially responsible and conventional
investment funds: performance comparison and the global financial crisis. Applied
Economics, 47(25), pp.2541-2562.
Von Wallis, M. and Klein, C., 2015. Ethical requirement and financial interest: a literature
review on socially responsible investing. Business Research, 8(1), pp.61-98.
Revelli, C., 2017. Socially responsible investing (SRI): From mainstream to margin?. Research
in International Business and Finance, 39, pp.711-717.

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