Does SRI really work? An Empirical Study on Chinese Case
As a new financial investment approach, social responsible investment (SRI) concerns about environment, social and other non-financial effects when making investment decision. SRI has developed rapidly since 1990s: the total asset of SRI has largely increased and many countries have successively joined in this trend. In China, the first social responsible fund was issued in March, 2008 and SRI has gradually gained attention in the past several years. “Making money, making difference” conveys the idea of SRI. Can SRI be profitable? Is the return of SRI different from that of conventional investment? Can SRI make the world real difference? These questions have been academic focus since 1970s; however, no consensus answer has occurred. The purpose of this paper is to explore the performance and its realizing mechanism of SRI in China, which would elaborate clearly the above questions in Chinese context and thus contribute to SRI development.
After a review on the past nearly 40 years’ studies, this paper attributes the limitations of recent studies to three problems, e.g. the absence of analysis on social performance, focus only on social screening and the lack of analysis on the status of developing countries.
Considering the limitations mentioned above, this paper firstly provides a qualitative analysis on both social performance and financial of SRI and its mechanisms from the perspective of investment strategies, e.g. .social screening, shareholder advocacy and community investing. After the theoretical analysis, this paper proposes two hypotheses. Firstly, SRI can impose effects on the social issues concerned by promoting enterprises to commit more social responsibilities and improving the poor’s lives. Secondly, comparing with the traditional security investment, the financial return of SRI is not lower and its fluctuation is not higher.
Then, the paper provides an empirical examination for the two theoretical hypotheses in Chinese context by case study and quantitative analysis. And it finds out that the effect of social screening is difficult to measure, the shareholder advocacy has not initiated yet and community investing has had notable effects. And the statistic analysis and regression analysis of the financial return of Xingquan Social Responsible Fund support the conclusion that the return of SRI is at least the same with conventional investment.
Finally, based on the current status of SRI in China and abroad, this paper analyzes the future trends of SRI development in China.