WIDVAWATI, Luluk. A Systematic Literature Review of Socially Responsible Investment and Environmental Social Governance Metrics

A SYSTEMATIC LITERATURE REVIEW OF SOCIALLY
RESPONSIBLE INVESTMENT (SRI) AND ENVIRONMENTAL

SOCIAL GOVERNANCE (ESG) METRICS
Keywords
Responsible Investment; Sustainability; ESG; Literature review; Sustainable Development.
Abstract
Socially responsible investment (SRI) encompasses both ethical and financial paradigms.
This systematic literature review explores three key research themes within the SRI literature,
identifying a significant disconnect between themes and a fixation on the financial (as
opposed to ethical) paradigm. One of the foundations of SRI is environmental, social, and
governance (ESG) metrics. This review confirms the importance of ESG metrics in the SRI
field, as they play two crucial roles, namely as a proxy for sustainability performance and an
enabler of the SRI market. However, there are two main issues related to ESG metrics that
undermine their reliability: a lack of transparency and lack of convergence.
Author
Luluk Widyawati
UQ Business School, The University of Queensland
Level 2, Colin Clark Building (Building 39)
UQ St. Lucia, Queensland 4072 AUSTRALIA
Email: luluk.widyawati@uq.net.au
Phone: +61416116995
Acknowledgements
The earlier version of this review paper has been presented at the 2017 European Business
Ethics Network (EBEN) Annual Conference. The author would like to thank the anonymous
reviewers of the conference for the valuable feedback. The author would also like to thank
Professor Tom Smith and Professor Martina Linnenluecke for their continuous support as
advisory team of the author’s PhD program.The author receives financial support for the PhD
from Indonesia Endowment Fund for Education Scholarship (LPDP RI) under a doctoral
degree scholarship. This paper is part of the author’s PhD thesis.
The author declares that she has no conflict of interest.
This is the author manuscript accepted for publication and has undergone full peer review but
has not been through the copyediting, typesetting, pagination and proofreading process, which
may lead to differences between this version and the Version of Record. Please cite this article
as doi: 10.1002/bse.2393
This article is protected by copyright. All rights reserved.

A SYSTEMATIC LITERATURE REVIEW OF SOCIALLY
RESPONSIBLE INVESTMENT (SRI) AND ENVIRONMENTAL
SOCIAL GOVERNANCE (ESG) METRICS
Abstract
Socially responsible investment (SRI) encompasses both ethical and financial paradigms.
This systematic literature review explores three key research themes within the SRI literature,
identifying a significant disconnect between themes and a fixation on the financial (as
opposed to ethical) paradigm. One of the foundations of SRI is environmental, social, and
governance (ESG) metrics. This review confirms the importance of ESG metrics in the SRI
field, as they play two crucial roles, namely as a proxy for sustainability performance and an
enabler of the SRI market. However, there are two main issues related to ESG metrics that
undermine their reliability: a lack of transparency and lack of convergence.
Keywords: Responsible Investment; Sustainability; ESG; Literature review; Sustainable

Development.

1. Introduction
Investors play a vital role in the global effort to achieve Sustainable Development
Goals (SDGs) by ensuring that capital is appropriately raised and allocated (PRI, 2017). The
practice of integrating sustainability criteria (particularly environmental, social, and
governance (ESG) ratings) in investment analysis is known as responsible investing (RI) or
socially responsible investment (SRI). SRI has gained increasing attention and popularity
over recent years, and the value of SRI portfolios has grown significantly (GSIA, 2018).
However, investors have raised concerns regarding the lack of a clear definition of when
investments can be classified as (socially) responsible, the absence of standards for SRI
investments, and the quality of available data on ESG ratings of companies (Avetisyan &
Hockerts, 2017; Friede, 2019).
Similarly, the literature reveals considerable diversity in the conceptual understanding
of SRI (Höchstädter & Scheck, 2015) albeit with a tendency to focus on financial concepts,
particularly the financial performance of SRI portfolios (Capelle‐ Blancard & Monjon,
2012). The ESG literature has also raised issues regarding the transparency and reliability of
existing metrics (Dorfleitner, Halbritter, & Nguyen, 2015; Semenova & Hassel, 2015).
However, the diversity of SRI literature is not well mapped, and there is little understanding
of the importance of ESG metrics.
This review of SRI literature offers two main contributions. Firstly, it provides a unique
visual tool to analyze the literature in the form of a bibliographic map. The findings reveal
continuously disproportionate academic attention on the financial paradigm of SRI,
particularly the financial performance of SRI portfolios. This fixation is a potential
distraction from the ultimate goal of SRI, which is for a company to become more ethical and
sustainable. The map also demonstrates a significant disconnection between different SRI
research themes.

Secondly, this review identifies new insights into the importance of ESG metrics. The
majority of the SRI literature applies ESG metrics as a proxy for sustainability performance.
In doing so, the literature continues to exhibit a lack of transparency in addition to
convergence issues, both of which undermine the quality and reliability of ESG metrics. This
review asserts that ESG metrics play a role as an enabler of the SRI market, with a range of
potential future research avenues.
This paper proceeds as follows. Data collection is described in Section 2 and
bibliometric analysis using HistCite™ software is outlined in Section 3. This is followed by a
discussion of the key themes in the SRI literature (Section 4) and recent research trends
(Section 5). Section 6 discusses ESG metrics in more detail. Section 7 provides a discussion
of the main findings and concludes the paper with suggestions for future research.
2. Data
Studies analyzed in this review were retrieved from the Social Science Citation Index (SSCI)
by Thomson Reuter Web of Sciences (WoS). The search was performed on the 6th April 2017
using a Boolean search with keywords "social* responsible mutual fund*" OR "social*
responsible fund*" OR "ethic* mutual fund* "OR "ethic* fund" OR "ethic* trust" OR "ESG"
OR "social* responsible invest*" OR "sustainab* invest*" OR "sustainab* financ*" OR
"ethic* invest*" OR "responsible invest*". The search included all English-language articles
indexed in the SSCI from 1900 to 2016. The keywords were adapted from Eccles and Viviers
(2011) and Höchstädter and Scheck (2015) as the most frequently used terms for SRI. The
wildcard character (*) was used to obtain results that contain variations of the search
keywords. For example, sustainab* will match both 'sustainable' and 'sustainability'. The OR
term was used to expand the search.
The search yielded a total of 634 articles. Information for each article was downloaded
and imported to the HistCite™ software for further analysis. Firstly, manual data cleaning

was performed to ensure the relevance of articles. An article was removed from the
HistCite™ collection if it: (1) was published in a non-peer-reviewed publication; (2) was
published in non-business academic journals; or (3) did not discuss any SRI topics. Articles
that addressed SRI, but not as the main discussion, were also excluded from the HistCite™
collection to maintain the focus of the review. An example of such an article is Maynard
(2008), which explores the impacts of climate change on insurers. This article mentions SRI
as an option to help insurers manage climate change risk but does not offer more elaborate
discussion. The manual data cleaning removed 230 articles from the collection.
Secondly, HistCite™ software (version 12.03.17) was used to conduct bibliometric
analysis and data visualization of articles retrieved from Web of Science (including SSCI).
The software facilitated the creation of a citation index which outlined the chronological
network of citations among the set of documents (Garfield, Pudovkin, & Istomin, 2003). A
cited reference search, to reveal all references cited by articles in the collection, was carried
out to ensure all important SRI articles were captured and that none were inadvertently
overlooked. The cited reference search identified the most relevant articles within the top 150
cited references. An additional 25 articles were found and manually added to HistCite™
(Table 1).
The next step was to manually check all articles in the HistCite™ database to ensure
there were no duplications or inconsistencies. To avoid subjective bias, two other researchers
reviewed the manual data cleaning and manual addition process and verified the results of the
process. In the case of disagreement, the articles were re-evaluated until consensus was
reached. The final collection used in this review comprises 429 articles.
-- Table 1 here --

3. Bibliometric Analysis
Bibliometric analysis of the collection reveals increasing interest in SRI over time. Figure 1
shows a significant increase in SRI studies over the last decade, with the highest number of
publications recorded in 2016. Ten journals (Table 2) are significant contributors to the field,
with the majority being multidisciplinary business and business ethics publications. These
journals published 200 articles (46% of the total articles). The Journal of Business Ethics was
the largest contributor with 112 articles. The Journal of Business Ethics is also the most cited,
with a total Local Citation Score (LCS) of 762. LCS is a score provided by the HistCite™
software that shows “the number of times a paper is cited by other papers in the local
collections” (Garfield, 2009). Financial Analysts Journal exhibits the most citations per
paper, with 66.5 LCS per article. Table 3 shows the top 10 journals with the highest LCS per
paper; the majority of journals are finance related.
-- Figure 1 here –
-- Table 2 here --
-- Table 3 here --
The bibliometric analysis of influential SRI articles is used to produce a bibliographic
map using HistCite™. There is no exact rule about how to identify influential articles.
However, the cut-off is typically the citation score where citations begin to level off. With a
cut-off point set at LCS ≥ 15, a total of 63 influential articles were identified. These articles
represent more than 14 percent of the original 429 articles. Table 4 presents citation data,
including citation counts, of these influential articles.
-- Table 4 here --

Figure 2 shows the bibliographic map with the 63 articles displayed as nodes (circles),
with the size of the node representing each article’s LCS score. The arrows and lines between
nodes represent citation connections. Clusters of closely connected nodes reveal the existence
of several key research themes.
Full-text analysis is used to identify the research themes, involving manual comparison
of articles to identify similarities and differences. This approach is adapted from Ryan and
Bernard (2003), who describe different techniques for identifying themes in qualitative
research. This review identifies three main research themes in the SRI literature (represented
by the shaded areas within the map). These themes are: (1) investor behavior (IB); (2) SRI
development (DEV); and (3) SRI performance (PERF). These themes are explored in detail
in the following section.
-- Figure 2 here --
4. Research Themes of SRI Literature
4.1 Investor Behavior Studies
Studies into SRI investor behavior assess motivation, investment pattern, and decision-
making. This theme is founded on the assumption that SRI investors are different from
conventional investors, as explored in 13 of the influential studies published in
multidisciplinary journals.
Initial studies on this theme focus on understanding individual investors. An early study
by Rosen et al. (1991) argues that understanding the characteristics of SRI investors,
particularly demographics and motivation, is central to understanding their behavior. Similar
studies in the United Kingdom (UK) (Lewis & Mackenzie, 2000), Australia (McLachlan &
Gardner, 2004), and Sweden (Nilsson, 2009) find that SRI investors have specific
characteristics in term of gender, education, and income.

However, Williams (2007) indicates that the demographic characteristics of SRI
investors cannot fully explain their decision-making; instead, investors’ belief systems
motivate SRI investment decisions.
Studies regarding motivation suggest that both financial and non-financial motivations
influence the SRI decision (Anand & Cowton, 1993; Beal, Goyen, & Phillips, 2005;
Mackenzie & Lewis, 1999). However, the balance between the two motives varies among
SRI investors (Cullis, Lewis, & Winnett, 1992), which affects an investor’s tolerance toward
the risk of lower financial returns of SRI (Webley, Lewis, & Mackenzie, 2001).
However, few studies have thoroughly investigated the belief systems that underpin the
behavior of SRI investors. Insight on how the belief systems of investors (be that religion,
social values, or cultural norms) affect motivation to invest in SRI would enable more
effective and targeted promotion of SRI.
It is likely that individual SRI investors are also institutional investors (such as pension
funds), but it is unclear how institutional behavior relates to individual behavior regarding
SRI. Studies on institutional SRI investors have attempted to provide evidence on this. Cox,
Brammer, and Millington (2004) find that institutional investors have similar investment
patterns to individual investors, especially regarding the use of negative screening or
exclusion strategies to balance financial and ESG goals. However, Cowton (1999) indicates
that the values and interests of the board of an ethical investment fund significantly influence
the selection of ethical boundaries and criteria.
Existing studies show there is a potential tension between clients and management in
terms of SRI implementation within an institutional investment, but more research is needed.
Understanding the extent to which strategy development and the decision-making process of
SRI institutional investors is affected by SRI preferences of individual investors is essential
to understand the client–agent relationship.

4.2 SRI Development Studies
SRI development studies tend to focus on SRI in specific areas (e.g., countries), theoretical
arguments for and against SRI, and participant roles in the SRI market. This theme comprises
16 influential studies (largely review and conceptual articles), with the majority appearing in
the Journal of Business Ethics.
The rapid development of SRI practices in the world’s major economies during the
early 2000s instigated studies on the growth and evolution of SRI. The practice of excluding
certain stocks from investment portfolios based on non-financial criteria began in the US and
UK before the 1990s. Some studies (Knoll, 2002; Schueth, 2003) indicate that SRI practices
in these two countries have matured to a stage where SRI investment models are well
developed. Despite this, there is still no consensus on whether SRI is accepted as a
mainstream practice in financial markets. Sparkes and Cowton (2004) argue that SRI
adoption by influential and powerful mainstream investors affirms its mainstream status;
however, market participants lack a unified perspective as to what constitutes SRI.
While some commonality exists regarding definitions, the mechanisms of SRI are very
heterogeneous. What is considered to be SRI by one market participant might not be fully
recognized by another (Sandberg, Juravle, Hedesström, & Hamilton, 2008). Sandberg et al.
(2008) identify impediments at individual and institutional levels, but Renneboog, Ter Horst,
and Zhang (2008b) suggest that SRI is likely to grow as investors become increasingly aware
of ESG factors and more favorable regulatory frameworks emerge.
Studies into the heterogeneity of SRI mechanisms in local (Schueth, 2003) or
international (Haigh & Hazelton, 2004; Sandberg et al., 2008; Sparkes & Cowton, 2004)
contexts generally agree that there are three main SRI mechanisms: screening, shareholder
activism, and community investment.

The screening strategy includes negative screening (the exclusion of certain
investments based on ESG criteria) and positive screening (which relies on a “best-in-class”
approach to selecting investments). Generally, investors are not involved in the operation of
investee companies. In comparison, shareholder activism or shareholder advocacy relies on
shareholders influencing companies to adopt more sustainable practices. Community
investment requires significant involvement, but investors who use this mechanism are
typically interested in financing sustainability projects or sustainability related companies.
While academics broadly agree on the categorization of SRI mechanisms, there is no
consensus on how or whether these mechanisms impact corporate practices.
Meanwhile, there are two main arguments conerning SRI’s sustainability impact. Rivoli
(2003) applies financial market theory and concludes that SRI portfolios that apply a
screening strategy have a better chance of achieving impact, provided unrealistic assumptions
regarding the SRI financial model (such as the perfect market assumption) are relaxed.
Rivoli’s argument is rooted in the belief that financial markets influence the company’s
policy and behavior (Irvine, 1987). In contrast, Sparkes and Cowton (2004) argue that
shareholder activism is likely to be the most potent method for influencing corporate policies.
Despite a lack of empirical evidence (Renneboog et al., 2008b), it is generally agreed
(theoretically at least) that SRI is capable of affecting corporate behavior. It is also crucial
that SRI fund managers are transparent about their products so that investors are informed
about the expected impacts of their investments (Michelson, Wailes, Van Der Laan, & Frost,
2004).
It can be concluded that, conceptually, SRI facilitates sustainable development, even if
there is disagreement about how to achieve significant impact. However, empirical studies
are needed to provide evidence to resolve the current debate on this topic.
10

Every SRI market participant plays an important role. Sethi (2005) argues that
institutional investors of pension funds play a potentially critical role not only as an investor
but also as an SRI advocate, since their actions could encourage other investors, including
credit investors (e.g., banks, private equity, and project financing providers) (Scholtens,
2006). Non-governmental organizations (NGOs) also have important roles as investors and
advocates by engaging in shareholder activism, creating SRI funds, campaigning for SRI, or
consulting with SRI funds (Guay, Doh, & Sinclair, 2004). These studies indicate the unique
feature of the SRI market in which each participant can have more than one role. Considering
the interconnectedness among market participants, the field is likely to benefit from further
study into the relationship dynamics between different participants in different SRI markets.
This would help identify the optimum mechanism for coordination and collaboration.
4.3 SRI Performance Studies
SRI performance is the most dominant research theme in the SRI literature, with 34 studies
examining the financial impact of SRI practices (including mutual funds, trusts, and
portfolios). The majority of studies in this stream are published by mainstream financial
journals, representative of the growing acceptance of SRI as an important topic in finance
research.
The assumed trade-off between return and responsibility, due to restriction of the pool
of assets that can be included in the investment portfolio, is a major concern for SRI.
However, it is theoretically possible for investors to create SRI portfolios that fulfill their
required return criteria. One method is the multi-attribute portfolio approach with
predetermined restrictions (Hallerbach, Ning, Soppe, & Spronk, 2004). Empirical studies into
SRI performance investigate the return of such portfolios with mixed findings.
11

Some studies demonstrate that integrating sustainability criteria has no significant
impact on portfolio return, meaning that the return of SRI portfolios is not statistically
different from returns of conventional portfolios. This result is consistent for trusts
(Cummings, 2000), mutual funds (Bauer, Derwall, & Otten, 2007; Bauer, Koedijk, & Otten,
2005; Cortez, Silva, & Areal, 2009; Derwall & Koedijk, 2009), stock indices (Schröder,
2007; Statman, 2006), and hypothetical portfolios (Sauer, 1997). A probable explanation is
that SRI portfolios, especially mutual funds, are generally managed similarly to conventional
funds (Benson, Brailsford, & Humphrey, 2006).
Alternatively, some studies present evidence that indicates SRI does have a positive
effect on returns by comparing equity portfolios with high and low ESG scores. These studies
show that a positive screening strategy is generally advantageous for investors (Statman &
Glushkov, 2009) as it provides a positive abnormal return, even after taking into account
additional transaction costs for SRI portfolios (Kempf & Osthoff, 2007). Similar positive
results are presented by studies that investigate the return of portfolios created on specific
ESG criteria such as eco-efficiency (Derwall, Guenster, Bauer, & Koedijk, 2005) and
employee satisfaction (Edmans, 2011). These studies show that SRI investors who remain
loyal and hold SRI portfolios over the long term are likely to be rewarded with incremental
returns. Further, SRI portfolios including SRI mutual funds are generally less volatile
(Bollen, 2009).
In contrast, empirical studies find evidence that portfolios based on ESG criteria have a
negative effect on financial returns. They reveal that returns for companies with a high ESG
score are lower than market return (Brammer, Brooks, & Pavelin, 2006) and ESG-based
stock selection lowers the stock’s book-to-market ratio (Galema, Plantinga, & Scholtens,
2008). Studies in 18 countries on SRI mutual funds also reach similar conclusions (Gregory,
Matatko, & Luther, 1997; Renneboog, Ter Horst, & Zhang, 2008a). The negative impact can
12

be exacerbated by screening intensity (Lee, Humphrey, Benson, & Ahn, 2010). While
empirical evidence on this negative impact supports the theory of a trade-off between social
responsibility and financial return, this does not mean that investors should avoid investing in
SRI; however, they must be aware of the trade-off and potentially lower returns.
Mutual funds managers also need to consider funds flow as it represents investors’
sentiment and future cash flow of the funds. In this regard, SRI funds are found to be less
sensitive to past returns than conventional funds (Benson & Humphrey, 2008; Renneboog,
Ter Horst, & Zhang, 2011). In other words, investors are unlikely to withdraw their
investments from SRI funds because of past negative returns.
Meanwhile, some studies identify a mixed effect of SRI. The multidimensional and
contextual nature of SRI means that SRI portfolios can perform differently in different
contexts. Derwall, Koedijk, and Ter Horst (2011) and Barnett and Salomon (2006) present
evidence that different screening mechanisms may affect financial performance. Negative
screening might lead to a low ESG scored firm being undervalued due to lack of demand.
Positive screening might mean the real value from ESG is not yet recognized for high scored
firms, resulting in their stock being undervalued; returns could be earned as the stocks move
toward their true values. Therefore, arguments both for and against SRI can be justified
depending on the context.
This review finds no indication that specific characteristics of influential SRI
performance studies influence the results. That said, one result is more common in one
setting. Table 5 shows examples of different results for studies conducted in similar contexts,
which reflect both a convergence and a divergence of SRI performance studies. Namely, the
studies tend to converge on the mutual fund setting but produce divergent results even in the
same setting. This fragmentation that exists within the SRI performance literature provides
opportunities for future research.
13

-- Table 5 here --
5. Recent Research Trends
In addition to bibliometric mapping, a second content analysis was performed on more recent
articles to counter the inherent shortcoming whereby mapping tends to discredit newly
published articles without many citations. The bibliographic map demonstrates that the most
influential articles were published between 1991 and 2011; however, Figure 1 shows that
published SRI studies peaked from 2014 to 2016. Additional content analysis reveals
continued development in the three key research themes described in the previous section.
While studies on SRI performance continue to dominate, several significant emerging trends
are also evident in each research theme.
SRI studies on investor behavior continue to focus on individual and institutional
investors. Noticeable trends include increasing attention on individual values and beliefs as
drivers of SRI investor behavior (Bauer & Smeets, 2015; Diouf, Hebb, & Touré, 2016;
Dumas & Louche, 2016; Durand, Koh, & Tan, 2013; Glac, 2012; Sandbu, 2012). Studies on
the return sensitivity of SRI investors reveal that they are less concerned about negative
performance (Martí-Ballester, 2015; Peifer, 2014), even if they expect a certain level of
financial return (Paetzold & Busch, 2014; Pérez-Gladish, Benson, & Faff, 2012), and
different groups of investors expect different returns (Berry & Junkus, 2013).
Researchers have also begun to pay more attention to the motivations of institutional
investors. External drivers, such as regulatory environment (Sievänen, Rita, & Scholtens,
2013) and internal drivers, such as product development and risk management (Crifo, Forget,
& Teyssier, 2015) have been the subject of investigation. However, researchers still have not
fully explored in-depth cross-analysis of the behavior of individual and institutional SRI
investors.
14

Recent studies present important insights into two issues regarding SRI development:
SRI mainstreaming and the heterogeneity of SRI mechanisms. Viviers and Eccles (2012)
argue that SRI practices are increasingly concentrated on screening (both positive and
negative) and shareholder activism. SRI institutional investors are becoming more interested
in shareholder activism, even though there is inconclusive empirical support for the approach.
Kolstad (2016) suggests that this may be due to shareholder activism triggered by political
and bureaucratic motives to appease stakeholder pressure, rather than by effectiveness and
efficiency motives.
Recent research presents two conceptual differences regarding the effect of the
heterogeneity of SRI mechanisms on the SRI mainstreaming effort, namely that it facilitates
or impedes the process. The facilitation argument suggests that heterogeneity makes SRI
more appealing to a broad range of investors who have different interests and concerns
(Child, 2015; Crifo & Mottis, 2016). The impediment argument suggests that the
idiosyncrasies of SRI undermine collective beliefs, leading to confusion and reluctance to
implement SRI (Dumas & Louche, 2016). Despite these differences in opinion, the consensus
is that more effort is required to bring SRI to the forefront of mainstream financial markets.
Recent studies present more evidence on the importance of the context of SRI and
insights into the unresolved debate on SRI’s impact on financial performance. Different SRI
settings, such as screening mechanisms and screening intensity, can have different impacts on
the financial performance of SRI portfolios. For example, Capelle-Blancard and Monjon
(2014) find that negative screening leads to underperformance, while positive screening has
no impact on the financial performance of French SRI funds. In contrast, Auer (2016) argues
that negative screening has no impact, while positive screening negatively impacts the
financial performance of European stock portfolios.
15

New narratives about methodological concerns of SRI performance studies have
emerged, including Rathner (2013) systematic meta-analysis of 25 SRI performance studies.
Rathner (2013) reveals that results are affected by characteristics such as survivorship bias,
focus on the US market, and the study period. As a result, SRI performance studies should be
interpreted with caution. Stellner, Klein, and Zwergel (2015) note that bias could be reduced
if mediating or moderating variables, such as country-specific variables, are integrated.
Other recent studies concentrate on specific SRI issues in several ways. Firstly, more
attention has been given to the impact of a particular dimension of ESG. For instance,
Borgers, Derwall, Koedijk, and ter Horst (2013) provide evidence that stakeholder
engagement is positively associated with long-term, risk-adjusted returns. Girerd-Potin,
Jimenez-Garcès, and Louvet (2014) extend this result for all types of stakeholders. Ballestero,
Bravo, Pérez-Gladish, Arenas-Parra, and Plà-Santamaria (2012) show that a portfolio with a
“green” reputation can earn lower returns than traditional portfolios.
Secondly, SRI performance in emerging economies has gained increasing attention. In
their Brazilian study, Ortas, Moneva, and Salvador (2012) indicate that SRI performs as well
as the market in bullish periods. Cunha and Samanez (2013) find that it suffers from losses in
periods of crisis due to constraints that lead to higher risks. South African SRI research
reveals no significant impact of ESG on financial performance (Chipeta & Gladysek, 2012;
Demetriades & Auret, 2014).
Thirdly, recent papers have contributed to understanding SRI performance in a
specific market situation. These include studies on market disturbance due to an increase in
competition (In, Kim, Park, Kim, & Kim, 2014) and studies pertaining to SRI during the
global financial crisis (Nofsinger & Varma, 2014).
Some recent studies adopt the unique approach of analyzing the performance of sin
portfolios as the antithesis of SRI portfolios. Sin stocks are perceived to be morally or
16

socially unacceptable, such as tobacco, alcohol, weapons, and gambling companies. Recent
studies present empirical evidence that a portfolio of only sin stocks performs better than the
market (Soler-Domínguez & Matallín-Sáez, 2016); however, merely including sin stocks in a
regular portfolio does not affect returns (Borgers, Derwall, Koedijk, & ter Horst, 2015; Lobe
& Walkshäusl, 2016). Therefore, excluding sin stocks from a portfolio is expected to have no
impact on returns.
6. Discussion of ESG Metrics
In the collection, 28 studies examine ESG measurement and 238 papers incorporate ESG
metrics. Further analysis reveals that the roles of ESG metrics are highly related to the type of
study. True to the nature of ESG metrics as a measurement unit, quantitative empirical
studies mainly apply ESG metrics as a proxy for sustainability performance. Meanwhile,
qualitative empirical studies and conceptual studies suggest that ESG metrics play a more
fundamental role as an enabling factor of the SRI market.
Analysis also facilitates the identification of ESG metrics providers. KLD is arguably
the oldest ESG rating agency and the most popular source of ESG metrics; KLD scoring is
used in 16 SRI performance studies. More recently, studies have also applied data from other
US and European based rating agencies such as ASSET4 (Stellner et al., 2015), Bloomberg
(Nollet, Filis, & Mitrokostas, 2016), Sustainalytics (Auer, 2016), EIRIS (Brammer et al.,
2006; Wu & Shen, 2013), SAM (Bird, Momenté, & Reggiani, 2012; Xiao, Faff, Gharghori, &
Lee, 2013), Vigeo (Girerd-Potin et al., 2014), and Innovest (Brzeszczyński & McIntosh,
2014; Derwall et al., 2005). There is little discourse on ESG metrics provided by local or
regional agencies. This section discusses the use of ESG metrics as a proxy for sustainability
performance (Section 6.1) and an enabling factor for the SRI market (Section 6.2).
17

6.1 ESG metrics as a proxy for sustainability performance
Operationalization of sustainability performance is challenging due to the broad and
contextual definition of sustainability. The literature indicates that such operationalization has
developed in line with the evolution of SRI practices. Early SRI in the 1990s generally
applied negative screening by excluding non-ethical or non-socially responsible companies
(Haigh & Hazelton, 2004; Schueth, 2003; Sparkes & Cowton, 2004). In this case, ESG
metrics are mainly applied to filter out non-ethical companies. As a result, most first-
generation ESG metrics, such as the original KLD rating, consist of binary codes to indicate
compliance or non-compliance with selected sustainability criteria (Hart & Sharfman, 2015;
Sharfman, 1996). However, the criteria are debatable because there is no consensus on the
definition of social responsibility (Michelson et al., 2004). This type of ESG metric is highly
subjective and inconsistent, especially when there is a lack of disclosure regarding the
methodology.
The next stage of evolution of ESG metrics is linked to the increasing popularity of
positive screening or “best-in-class” practices. As an exclusionary SRI strategy, negative
screening is often regarded as a punishment for non-ethical companies (Heinkel, Kraus, &
Zechner, 2001). However, for some investors, negative screening no longer reflects the
sustainability values they wish to achieve (de Colle & York, 2009). Furthermore, SRI
practices have recently shifted toward a balance between punishing non-performing
companies and rewarding best performing companies (Haigh & Hazelton, 2004; Heinkel et
al., 2001).
Using binary-based ESG metrics is a challenge when evaluating and selecting best
performing companies. Therefore, ESG metrics have evolved to more accurately reflect
sustainability performance to facilitate a change in SRI practices (Renneboog et al., 2008b).
In this second generation of ESG metrics, an aggregated score is provided, more specific
18

criteria for each dimension developed, weights of each dimension reassessed, and the binary
code expanded, yielding a scoring model that distinguishes performance ranges. The result is
a rating or ranking form of ESG metrics.
SRI performance studies have applied both first and second generation ESG metrics as
a proxy for sustainability performance, both directly and indirectly. The direct application
involves the use of ‘raw’ ESG metrics, namely the aggregated ESG score or scores for each
ESG dimension. The indirect application involves the use of ESG metrics that have been
further processed to form an SRI index or used in an investment analysis that results in SRI
mutual funds.
Direct application of ESG metrics has reduced some biases because it eliminates the
effect of transaction costs and managerial issues (i.e., investment manager skills or
preferences) by creating unique (hypothetical) portfolios. However, direct application means
that measurement issues related to ESG metrics might directly affect study results.
Nevertheless, the increasing popularity of this approach within recently published SRI
performance studies indicates that researchers recognize and value its benefits. There are
eight influential studies (e.g. Brammer et al., 2006; Kempf & Osthoff, 2007; Sauer, 1997) and
47 recent articles (e.g. Auer, 2016; Girerd-Potin et al., 2014; Xiao et al., 2013) that directly
apply ESG metrics as a proxy for sustainability performance.
Researchers have also extensively applied indirect ESG metrics, with many analyzing
data on SRI mutual funds. Of the SRI performance studies, 44 examine the performance of
SRI mutual funds, including 12 influential studies and 32 recent studies. A major concern is
that only some of the studies (Borgers et al., 2015; Capelle‐ Blancard & Monjon, 2014;
Henke, 2016) provide information about the raw ESG metrics used to create the funds. This
may simply reflect the extensive effort needed to identify the raw ESG metrics, especially if
the studies examine a vast number of mutual funds. Moreover, not all mutual funds provide
19

this information. This lack of transparency and the issues of transaction costs and managerial
influence are shortcomings of mutual funds data. Regardless, studies of SRI mutual funds
present a realistic view of SRI, since mutual funds are arguably one of the most popular
investment vehicles for SRI investors. It is also relatively easy to identify SRI mutual funds
via fund registers compiled by SRI forums, such as the US SIF1 (Benson et al., 2006; Benson
& Humphrey, 2008; Renneboog et al., 2011) and Eurosif2 (Cortez et al., 2009).
The type of ESG metrics used as a proxy of sustainability measurement is related to the
scope and model employed by these studies. A total of 15 SRI performance studies use ESG
or SRI indices in their analysis. These studies generally implement a comparison model,
namely comparing the performance of SRI portfolios with either conventional portfolios or
market benchmarks (Kappou & Oikonomou, 2016; Schröder, 2007; Statman, 2006). The
most commonly used SRI indices are Domini400 (based on KLD data), FTSE4Good (data
from EIRIS), and Dow Jones Sustainability Index (data from SAM) and published in either
the US or UK. Other domestic stock indices tend to be used in studies that specifically
examine SRI performance in a specific country (Chipeta & Gladysek, 2012; Ortas, Moneva,
Burritt, & Tingey-Holyoak, 2014; Ortas et al., 2012).
Despite the evolution of ESG metrics and their popularity as a proxy for sustainability
performance, the metrics remain flawed. The lack of transparency continues to be a key issue
(Busch, Bauer, & Orlitzky, 2016; Delmas & Blass, 2010). Even though several ESG rating
agencies have published more information regarding their methodology, much information
crucial for meaningful interpretation and accurate comparison has not been fully disclosed.
Changes in the ESG information market as new agencies are launched and established data
providers enter the market exacerbates transparency concerns and creates additional
confusion (Delmas, Etzion, & Nairn-Birch, 2013). Moreover, there is still no standard for
ESG metrics, which means data is fragmented and inconsistent due to differences in data
20

collection, incompatible data formats, and different levels of quality control (Sethi, 2005,
Juravle & Lewis, 2008). Although the different metrics consist of some common dimensions,
the aggregate measurement does not converge (Semenova & Hassel, 2015). Recent studies
have also uncovered other measurement issues including bias toward larger companies (Jun,
2016) and a lack of predictive power (Chatterji, Levine, & Toffel, 2009). Current practices in
ESG measurement need to improve significantly if ESG metrics are to be reliable and valid
(Busch et al., 2016).
Some alternative frameworks to help resolve the issues surrounding ESG metrics have
been put forward (Cabello, Ruiz, Pérez-Gladish, & Méndez-Rodríguez, 2014; Kocmanova &
Simberova, 2012; Kocmanová & Šimberová, 2014). However, the uptake and impact of these
alternatives remain to be seen. The shortcomings of ESG metrics mean that information
might not accurately represent a company’s ESG performance, which in turn might mislead
investors (Cheng et al., 2015). Consequently, investment analysts and academics should
exercise caution when using ESG metrics.
6.2 ESG metrics as an enabling factor for the SRI market
ESG metrics also serve as an enabling factor for the SRI market. Studies on SRI investor
behavior, SRI development, and ESG metrics suggest that ESG metrics provide legitimacy,
accelerate growth, and build awareness for the SRI market. ESG metrics are an essential
element in establishing an SRI market.
An ESG metric is a tool to adapt and align the cognitive frameworks of SRI
stakeholders with the professional standards of the financial sector. ESG metrics render SRI
understandable and scalable to the broader financial community and help ensure the
legitimacy of SRI as an emerging financial market (Déjean, Gond, & Leca, 2004). As SRI
markets develop, legitimacy is maintained by ESG rating agencies collaboratively and
politically engaging with other macro actors in the financial market (Giamporcaro & Gond,
21

2016). It is thus important to have insights into the role of ESG metrics in establishing SRI
markets to promote new markets, especially in emerging economies.
The introduction of ESG metrics is also vital to accelerate the growth of emerging SRI
markets. Reviews of SRI market development in different countries reveals that SRI
portfolios have grown significantly after ESG metrics were introduced or ESG rating
agencies were established. For instance, Cullis et al. (1992) and Solomon, Solomon, and Suto
(2004) credit the 1983 establishment of the UK’s EIRIS as one of the main factors enabling
the growth of the UK SRI market. Similarly, the French SRI market grew substantially after
an ESG rating agency (Arese, subsequently known as Vigeo) was launched in 1997 (Arjaliès,
2014; Gond & Boxenbaum, 2013). This acceleration is amplified when the establishment is
accompanied by compatible regulation and adoption of the metrics by influential market
players (Kreander, McPhail, & Beattie, 2015; Vasudeva, 2013). However, this acceleration
effect can be dampened by lack of transparency and standardization in the use of ESG
metrics by SRI analysts (Sandberg et al., 2008).
ESG metrics are also a useful tool to educate and build awareness about SRI. Studies
indicate that investors with limited awareness and understanding of available ESG metrics are
hesitant to invest in SRI (Escrig‐ Olmedo, Muñoz‐ Torres, & Fernández‐ Izquierdo, 2013;
Giamporcaro & Pretorius, 2012). For SRI investors, there is concern about whether their
ethical beliefs can be integrated into investment analysis. ESG metrics help investors
understand the integration process by showing the various options, in terms of ESG
dimensions and measurements, that they can choose in order to translate their beliefs into
investment criteria (Heinkel et al., 2001). It is thus likely that a lack of awareness about ESG
metrics impedes SRI market growth.
22

7. Discussion and Conclusion
SRI is an important vehicle for capital allocation in the effort to achieve sustainable
development goals (PRI, 2017). Investors recognize that ESG is crucial for the practice of
SRI (Avetisyan & Hockerts, 2017; Friede, 2019). However, there is a lack of understanding
of the importance of ESG metrics in the SRI literature. This review demonstrates that SRI is
conceptualized differently across two main paradigms: it is a financial innovation born from
ethical concerns about corporate behavior. In other words, there are two sides to the SRI coin:
ethical and financial.
The ethical paradigm views SRI as an instrument to pressure companies to change their
policies and operate more ethically and sustainably. SRI advocates generally consider this to
be SRI’s ultimate goal. A vital feature of this paradigm is the complex and multidisciplinary
context of SRI, which arises from the nature of ethics and sustainability. Investor behavior
and SRI development themes mainly represent this paradigm. A critical discussion in this
paradigm concerns the best and most effective ways to achieve desired outcomes, considering
the vast heterogeneity of SRI mechanisms and the unique relationship among SRI market
participants.
The financial paradigm views SRI as new financial services offered to specific groups
of investors, and consequently assumes that SRI retains characteristics of traditional financial
products. This assumption is inherent in studies that emphasize the financial characteristics of
SRI, such as returns, risks, and quantitative financial models. This paradigm is illustrated by
extensive empirical studies on SRI performance. These studies have not yet come to a general
consensus, and further analysis reveals that they tend to be conducted in similar, if not the
same, contexts. For example, studies often use similar types and sources of data (e.g., mutual
funds data from US SIF or Eurosif), similar methodologies (e.g., multi-factor model), and
focus on certain countries or regions (e.g., US, UK, and Europe). Nevertheless, there is little
23

empirical knowledge about the most effective way to apply SRI as a quantitative financial
model and how this application affects market equilibrium.
This review identifies three key research themes and contributes two related findings.
Firstly, SRI literature is dominated by studies of SRI performance. This review indicates that
far more SRI performance studies have been published compared to other themes, in terms of
both influential and recently published articles. The dominance of SRI performance studies is
concerning because it suggests that academic discussion might be excessively fixated on
output - that is, financial performance - and thus overlook SRI’s ultimate goal, which is to
change corporate behavior. One of the possible reasons for the dominance of SRI
performance studies is the availability of data (Capelle‐ Blancard & Monjon, 2012).
Nevertheless, the heterogeneity of SRI practices is still not fully explored by SRI
performance studies. For example, little work has been done on the financial impact of
shareholder activism. Another possible reason for the dominance of SRI performance studies
is that academics are under increasing pressure from financial markets to provide evidence on
the financial impact of SRI practices. Studies on SRI development identify this as a short-
term paradigm problem; that is, a mismatch between the relatively short-term views of
financial markets and the supposedly long-term view of ESG. ESG is viewed as a long-term
issue because changes in a company’s behavior take longer to manifest than changes in the
performance of its stocks.
Secondly, the dominance of SRI performance studies is exacerbated by the lack of
integration between different research themes. SRI studies tend to refer to other studies
within the same research theme. This tendency is illustrated in the bibliographic map, which
shows very few connections between studies in different research themes. One possible
reason for this is that the two different paradigms stem from different fields and thus have
different conversation circles including different publication avenues. A researcher from one
24

field might not be aware of the studies performed in another. Therefore, it is important to
have more avenues for researchers from different fields to meet and discuss their research to
build holistic awareness and understanding of SRI.
Future studies on SRI should also attempt to connect the different paradigms of SRI.
Such studies should explore more questions about the conceptual, theoretical, and behavioral
issues of SRI, which are more related to SRI’s ultimate goal. Possible topics for future studies
include the relationship between financial performance of SRI portfolios and changes in ESG
practices of companies included in the portfolio, the assessment of SRI financial performance
from the company perspective, and the financial effect of shareholder activism initiatives.
Regarding ESG metrics, there is a strong argument that the quality and reliability of
ESG metrics need to improve. The role of ESG metrics as a proxy of sustainability
performance is highly prominent in empirical studies in the SRI performance theme.
However, there are two main measurement problems with ESG metrics: lack of transparency
and lack of consistency or convergence. A lack of transparency arises because ESG data
providers and rating agencies do not disclose sufficient information about the processes and
methodologies they use to produce the metrics or the quality of the data used in the process.
Future research on this issue could examine rating agency disclosures, evaluate the level of
transparency of different agencies, and subsequently investigate the impact of the lack of
transparency on companies and investors.
Regarding the lack of consistency or convergence, studies reveal that different rating
agencies may score the same company differently because of differences in data collection
and methodologies. However, the lack of transparency means there is not enough information
to thoroughly compare the substance and calculation processes of ESG metrics from different
rating agencies. Studies on this lack of convergence generally analyze aggregated ESG
metrics, demonstrating that composite ESG scores and specific environmental scores
25

published by several major rating agencies (KLD, Trucost, Asset4, GES) do not converge.
More studies are required to investigate whether this lack of convergence exists in other
settings. Future studies could also investigate whether there is a lack of convergence in the
social and governance dimensions of ESG. Studies on different or larger sample sets would
also improve understanding of convergence issues. Future studies could also capture the vast
diversity of ESG metrics available by including metrics from the relatively less studied rating
agencies such as EIRIS, Vigeo, SAM, Innovest, and Sustainalytics. In addition, more
research on improving transparency and convergence while protecting the intellectual
propriety of rating agencies are needed.
The last finding regards the lack of understanding about the role of ESG metrics as an
enabling factor of SRI. The emergence of ESG metrics is credited as one of the main factors
that provide legitimacy for SRI markets, especially in their early stages of development.
Subsequently, as SRI markets develop, the establishment of ESG metrics is often followed by
accelerated growth in the number of transactions and investors. However, there is a lack of
understanding about why and how this happens. Such an understanding is vital if a similar
effect is to be achieved in emerging SRI markets in Asia and Africa. There is little research
on this issue and what exists has been conducted in a narrow context, such as a single
country. Future studies that examine how ESG metrics affect the dynamics of SRI markets
are needed, as are those that examine market players’ perceptions. Insights into how the
behavior and perception of investors and companies might change as a result of the
emergence or modification of ESG metrics would also be worth exploring.
The findings of this review contribute to the literature by presenting a novel
visualization tool to analyze the development of SRI literature. This paper extends the
findings of previous work by Capelle‐Blancard and Monjon (2012) by identifying three main
research themes in the SRI literature and presenting visual evidence of the prevalent
26

disconnection in the literature. This review also support the findings of Friede (2019) by
presenting new insights into the importance of ESG metrics, as demonstrated by their vital
role as a proxy for sustainability performance and an enabling factor of the SRI market.
These findings, along with the future research opportunities identified, are intended to
enhance the theoretical and empirical understanding of SRI which is essential for the future
development of SRI.
27

Notes
1
US SIF: The Forum for Sustainable and Responsible Investment, previously known as US
Social Investment Forum, is a US-based membership association that act as the non-profit
hub for the SRI in the US.

2
Eurosif is the leading association for the promotion and advancement of SRI in Europe.
28

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1342-2
41

Table 1. List of additional articles
AUTHOR(S) YEAR TITLE LCS REASON FOR

MANUAL
ADDITION
Statman, M 2000 Socially responsible mutual funds 102 Not Available in SSCI
Hamilton, S; Jo, 1993 Doing well while doing good? The investment 84 Not Available in SSCI
H; Statman, M performance of socially responsible mutual funds
Sparkes, R; 2004 The maturing of socially responsible investment: A re 66 Not captured in the
Cowton, CJ view of the developing link with corporate initial search
social responsibility
Barnett, ML; 2006 Beyond dichotomy: The curvilinear relationship betw 49 Not matching the
Salomon, RM een social responsibility and financial performance keywords
Briston, RJ; 1995 The financial performance of ethical investment 48 Not Available in SSCI
Mallin, CA; funds
Saadouni, B
Kreander, N; 2005 Evaluating the performance of ethical and non- 46 Not captured in the
Gray, RH; Power, ethical funds: A matched pair analysis initial search
DM; Sinclair, CD
Gregory A; 1997 Ethical unit trust financial performance: Small 44 Not Available in SSCI
Matatko J; Luther company effects and fund size effects
R
Bello, ZY 2005 Socially responsible investing and portfolio 44 Not Available in SSCI
diversification
Hong, H; 2009 The price of sin: The effects of social norms on 43 Not matching the
Kacperczyk, M markets keywords
Sauer, DA 1997 The impact of social-responsibility screens on 43 Not Available in SSCI
investment performance: Evidence from the Domini
400 Social Index and Domini Equity Mutual Fund
Bollen, NPB 2007 Mutual fund attributes and investor behavior 38 Not matching the
keywords
Luther RG; 1992 The investment performance of UK “ethical” unit 37 Not Available in SSCI
Matatko J; trusts
Corner DC
Statman, M 2006 Socially responsible indexes: 27 Not matching the
Composition, performance, and tracking error keywords
Goldreyer, EF; 1999 The performance of socially responsible mutual 26 Not Available in SSCI
Diltz, JD funds: Incorporating sociopolitical information in
portfolio selection
Sparkes, R 2001 Ethical investment: whose ethics, which investment? 24 Not Available in SSCI
Mackenzie, C; 1999 Morals and markets: the case of ethical investing 23 Not Available in SSCI
Lewis, A
Gregory, A; 2007 Performance and performance persistence of 'ethical' 21 Not matching the
Whittaker, J unit trusts in the UK keywords
Brammer, S; 2006 Corporate social performance and stock returns: UK 19 Not matching the
Brooks, C; evidence from disaggregate measures keywords
Pavelin, S
Knoll, MS 2002 Ethical screening in modern financial markets: The 17 Not matching the
conflicting claims underlying socially responsible keywords
investment
Irvine, WB 1987 The ethics of investing 16 Not matching the
keywords
42

AUTHOR(S) YEAR TITLE LCS REASON FOR
MANUAL
ADDITION
Cowton, CJ 1999 Playing by the rules: ethical criteria at an ethical 15 Not Available in SSCI
investment fund
Williams, G 2007 Some determinants of the socially responsible 15 Not Available in SSCI
investment decision: A cross-country study
Beal, D; Goyen, 2005 Why do we invest ethically? 15 Not matching the
M; Phillips, P keywords
Nilsson, J 2009 Segmenting socially responsible mutual fund 15 Not matching the
investor: The influence of financial return and social keywords
responsibility
Fowler, SJ; Hope, 2007 A critical review of sustainable business indices and 14 Not matching the
C their impact keywords
Note. Sorted by LCS
43

Table 2. Top 10 publishing journals in the field of SRI
NO PUBLICATION ARTICLES ARTICLES ARTICLES TOTAL TOTAL

TITLE PUBLISHED PUBLISHED PUBLISHED ARTICLES LCS
1987-1996 1997-2006 2007-2016
1 Journal of Business 2 31 79 112 762
Ethics
2 Journal of Banking 1 15 16 290
& Finance
3 Business Ethics - A 2 11 13 76
European Review
4 Corporate 2 9 11 45
Governance - An
International
Review
5 Sustainable 1 9 10 29
Development
6 Journal of Cleaner 1 8 9 5
Production
7 Business & Society 8 8 11
8 Journal of Business 1 1 5 7 213
Finance &
Accounting
9 European Journal 1 6 7 49
of Operational
Research
10 Business Strategy 7 7 7
and The
Environment
Total 200
44

Table 3. Top 10 publishing journals with highest LCS per article
NO PUBLICATION TITLE TOTAL LCS NUMBER OF LCS PER

ARTICLES ARTICLE
1 Financial Analysts Journal 266 4 66.50
2 Journal of Financial 44 1 44.00
Research
3 Review of Financial 43 1 43.00
Economics
4 Journal of Financial and 77 2 38.50
Quantitative Analysis
5 Journal of Business Finance 213 7 30.43
& Accounting
6 Journal of Consumer Affairs 30 1 30.00
7 Managerial Finance 26 1 26.00
8 Strategic Management 51 2 25.50
Journal
9 Journal of Financial 76 3 25.33
Economics
10 Human Relations 45 2 22.50
45

Table 4. List of highly cited papers in the collection
NO Hist AUTHOR(S) TITLE PUBLI- YEAR LCS THEME

Cite CATION
ID
1 77 Bauer, R; International evidence on Journal of 2005 105 SRI
Koedijk, K; Otten, ethical mutual fund Banking & Performance
R performance and investment Finance
style
2 27 Statman, M Socially responsible mutual Financial 2000 102 SRI
funds Analysts Performance
Journal
3 132 Renneboog, L; Socially responsible Journal of 2008 86 SRI
Ter Horst, J; investments: institutional Banking & Development
Zhang, CD aspects, performance, and Finance
investor behavior
4 12 Hamilton, S; Jo, Doing well while doing Financial 1993 84 SRI
H; Statman, M good? The investment Analysts Performance
performance of socially Journal
responsible mutual funds
5 59 Sparkes, R; The maturing of socially Journal of 2004 66 SRI
Cowton, CJ responsible investment: a Business Development
review of the developing Ethics
link with corporate social
responsibility
6 71 Derwall, J; The eco-efficiency premium Financial 2005 57 SRI
Guenster, N; puzzle Analysts Performance
Bauer, R; Journal
Koedijk, K
7 126 Renneboog, L; The price of ethics and Journal of 2008 55 SRI
Ter Horst, J; stakeholder governance: the Corporate Performance
Zhang, C performance of socially Finance
responsible mutual funds
8 91 Barnett, ML; Beyond dichotomy: the Strategic 2006 49 SRI
Salomon, RM curvilinear relationship Management Performance
between social Journal
responsibility and financial
performance
9 16 Briston, RJ; The financial performance Journal of 1995 48 SRI
Mallin, CA; of ethical investment funds Business Performance
Saadouni, B Finance &
Accounting
10 80 Kreander, N; Evaluating the performance Journal of 2005 46 SRI
Gray, RH; Power, of ethical and non-ethical Business Performance
DM; Sinclair, CD funds: a matched pair Finance &
analysis Accounting
11 18 Gregory A; Ethical unit trust financial Journal of 1997 44 SRI
Matatko J; Luther performance: small Business Performance
R company effects and fund Finance &
size effects Accounting
12 68 Bello, ZY Socially responsible Journal of 2005 44 SRI
investing and portfolio Financial Performance
diversification Research
13 19 Sauer, DA The impact of social- Review of 1997 43 SRI
responsibility screens on Financial Performance
investment performance: Economics
evidence from the Domini
400 social index and
Domini equity mutual fund
14 45 Schueth, S Socially responsible Journal of 2003 43 SRI
investing in the United Business Development
States Ethics
46

Cite CATION
ID
15 168 Hong, H; The price of sin: the effects Journal of 2009 43 SRI
Kacperczyk, M of social norms on markets Financial Performance
Economics
16 109 Kempf, A; 2005 report on socially European 2007 42 SRI
Osthoff, P responsible investing trends Financial Performance
in the United States Management
17 96 Bauer, R; The ethical mutual fund Journal of 2007 41 SRI
Derwall, J; Otten, performance debate: new Business Performance
R evidence from Canada Ethics
18 40 Heinkel, R; The effect of green Journal of 2001 39 SRI
Kraus, A; investment on corporate Financial and Performance
Zechner, J behavior Quantitative
Analysis
19 107 Bollen, NPB Mutual fund attributes and Journal of 2007 38 SRI
investor behavior Financial and Performance
Quantitative
Analysis
20 9 Luther RG; The investment Accounting 1992 37 SRI
Matatko J; Corner performance of UK Auditing & Performance
DC "ethical" unit trusts Accountability
Journal
21 28 Lewis, A; Morals, money, ethical Human 2000 31 SRI
Mackenzie, C investing and economic Relations Performance
psychology
22 144 Galema, R; The stocks at stake: return Journal of 2008 31 Investor
Plantinga, A; and risk in socially Banking & behavior
Scholtens, B responsible investment Finance
23 7 Rosen, BN; Social-issues and socially Journal of 1991 30 Investor
Sandler, DM; responsible investment Consumer behavior
Shani, D behaviour - a preliminary Affairs
empirical-investigation
24 30 Cummings, LS The financial performance Journal of 2000 27 SRI
of ethical investment trusts: Business Performance
an Australian perspective Ethics
25 85 Statman, M Socially responsible indexes Journal of 2006 27 SRI
- composition, performance, Portfolio Performance
and tracking error. Management
26 26 Goldreyer, EF; The performance of socially Managerial 1999 26 SRI
Diltz JD responsible mutual funds: Finance Performance
incorporating sociopolitical
information in portfolio
selection
27 60 Haigh, M; Financial markets: a tool for Journal of 2004 25 SRI
Hazelton, J social responsibility? Business Development
Ethics
28 36 Sparkes, R Ethical investment: whose Business 2001 24 SRI
ethics, which investment? Ethics-A Development
European
Review
29 98 Schroder, M Is there a difference? The Journal of 2007 24 SRI
performance characteristics Business Performance
of SRI equity indices Finance &
Accounting
30 133 Benson, K; Socially responsible Journal of 2008 24 SRI
Humphrey, JE investment funds: investor Banking & Performance
reaction to current and past Finance
returns
31 165 Sandberg, J; The heterogeneity of Journal of 2009 24 SRI
Juravle, C; socially responsible Business Development
Hedesstrom, TM; investment Ethics
Hamilton, I
47

Cite CATION
ID
32 224 Edmans, A Does the stock market fully Journal of 2011 24 SRI
value intangibles? Financial Performance
Employee satisfaction and Economics
equity prices
33 24 Mackenzie, C; Morals and markets: the Business 1999 23 SRI
Lewis, A case of ethical investing Ethics Development
Quarterly
34 37 Webley, P; Lewis, Commitment among ethical Journal of 2001 23 SRI
A; Mackenzie, C investors: an experimental Economic Development
approach Psychology
35 53 Hallerbach, W; A framework for managing European 2004 23 SRI
Ning, H; Soppe, a portfolio of socially Journal of Performance
A; Spronk, J responsible investments Operational
Research
36 57 Mclachlan, J; A companison of socially Journal of 2004 23 SRI
Gardner, J responsible and Business Performance
conventional investors Ethics
37 63 Guay, T; Doh, JP; Non-governmental Journal of 2004 23 Investor
Sinclair, G organizations, shareholder Business behavior
activism, and socially Ethics
responsible investments:
ethical, strategic, and
governance implications
38 86 Benson, K; Do socially responsible Journal of 2006 23 Investor
Brailsford, TJ; fund managers really invest Business behavior
Humphrey, JE differently? Ethics
39 163 Statman, M; The wages of social Financial 2009 23 Investor
Glushkov, D responsibility Analysts behavior
Journal
40 29 Lewis, A; Support for investor Journal of 2000 22 SRI
Mackenzie, C activism among UK ethical Business Development
investors Ethics
41 56 Michelson, G; Ethical investment Journal of 2004 22 SRI
Wailes, N; Van processes and outcomes Business Performance
Der Laan, S; Ethics
Frost, G
42 167 Cortez, MC; The performance of Journal of 2009 22 Investor
Silva, F; Areal, N European socially Business behavior
responsible funds Ethics
43 46 Schwartz, MS The ethics of “ethical Journal of 2003 21 SRI
investing" Business Development
Ethics
44 106 Gregory, A; Performance and Journal of 2007 21 SRI
Whittaker, J performance persistence of Business Performance
'ethical' unit trusts in the Finance &
UK Accounting
45 221 Derwall, J; A tale of values-driven and Journal of 2011 21 SRI
Koedijk, K; Ter profit-seeking social Banking & Performance
Horst, J investors Finance
46 14 Anand, P; The ethical investor - Journal of 1993 20 Investor
Cowton, CJ exploring dimensions of Economic behavior
investment behavior Psychology
47 58 Cox, P; Brammer, An empirical examination Journal of 2004 19 Investor
S; Millington, A of institutional investor Business behavior
preferences for corporate Ethics
social performance
48 90 Brammer, S; Corporate social Financial 2006 19 SRI
Brooks, C; performance and stock Management Performance
Pavelin, S returns: UK evidence from
disaggregate measures
48

Cite CATION
ID
49 228 Renneboog, L; Is ethical money financially Journal of 2011 19 SRI
Ter Horst, J; smart? Nonfinancial Financial Performance
Zhang, CD attributes and money flows Intermediation
of socially responsible
investment funds
50 127 Juravle, C; Lewis, Identifying impediments to Business 2008 18 SRI
A SRI in Europe: a review of Ethics-A Development
the practitioner and European
academic literature Review
51 192 Lee, D; Socially responsible Accounting 2010 18 SRI
Humphrey, JE; investment fund and Finance Performance
Benson, K; Ahn, performance: the impact of
JYK screening intensity
52 42 Knoll, MS Ethical screening in modern Business 2002 17 SRI
financial markets: the Lawyer Development
conflicting claims
underlying socially
responsible investment
53 50 Rivoli, P Making a difference or Business 2003 17 SRI
making a statement? Ethics Development
Finance research and Quarterly
socially responsible
investment
54 5 Irvine, WB The ethics of investing Journal of 1987 16 SRI
Business Development
Ethics
55 70 Sethi, SP Investing in socially Journal of 2005 16 SRI
responsible companies is a Business Development
must for public pension Ethics
funds - because there is no
better alternative
56 153 Derwall, J; Socially responsible fixed- Journal of 2009 16 SRI
Koedijk, K income funds Business Performance
Finance &
Accounting
57 11 Cullis, JG; Lewis, Paying to be good - UK Kyklos 1992 15 Investor
A; Winnett, A ethical investments behavior
58 25 Cowton, CJ Playing by the rules: ethical Business 1999 15 Investor
criteria at an ethical Ethics-A behavior
investment fund European
Review
59 69 Beal, D; Goyen, Why do we invest ethically? Journal of 2005 15 Investor
M; Phillips, P Investing behavior
60 89 Scholtens, B Finance as a driver of Journal of 2006 15 Investor
corporate social Business behavior
responsibility Ethics
61 94 Williams, G Some determinants of the Journal of 2007 15 SRI
socially responsible Behavioral Development
investment decision: a Finance
cross-country study
62 147 Nilsson, J Segmenting socially International 2009 15 Investor
responsible mutual fund Journal of behavior
investor: the influence of Bank
financial return and social Marketing
responsibility
63 161 Chatterji, AK; How well do social ratings Journal of 2009 15 ESG
Levine, DI; actually measure corporate Economics & Measurement
Toffel, MW social responsibility? Management
Strategy
Note. Sorted by LCS
49

Table 5. Examples of different results for SRI Performance studies in
similar contexts
CONTEXT NO SRI SRI MULTI
SIGNIFICANT POSITIVE NEGATIVE IMPACTS
DIFFERENCE IMPACT IMPACT
Study Object Mutual Funds 13 1 2 2
Trust 1 2 1 0
Equity Portfolio 1 4 1 0
Individual Firm Stocks 0 0 2 0
Approach Comparing SRI Portfolio vs 17 3 3 2
Conventional Benchmark
Comparing High ESG vs Low ESG 0 4 3 0
Scored Portfolio
Main CAPM* 10 2 0 1
Quantitative
CAPM* & Multi-factor Model 1 2 2 0
Model Used
Multi-factor Model 3 3 3 1
Regression 2 0 0 0
Note. *including Sharpe’s ratio and Jensen’s alpha
50

Figure 1. Total publication output of SRI studies per year
60
55
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35
30
25
20
15
10
0
1979
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Year
Number of Publication
51
Figure 2. Bibliographic Map of Influential Articles in the SRI field
DEV IB
PERF
*Label : 6. Rosen 1991
HistCite ID Author Publication Year
52

WIDVAWATI, Luluk. A Systematic Literature Review of Socially Responsible Investment and Environmental Social Governance Metrics

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WIDVAWATI, Luluk. A Systematic Literature Review of Socially Responsible Investment and Environmental Social Governance Metrics

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A SYSTEMATIC LITERATURE REVIEW OF SOCIALLY

RESPONSIBLE INVESTMENT (SRI) AND ENVIRONMENTAL

The author declares that she has no conflict of interest.

This article is protected by copyright. All rights reserved.

RESPONSIBLE INVESTMENT (SRI) AND ENVIRONMENTAL

SOCIAL GOVERNANCE (ESG) METRICS

undermine their reliability: a lack of transparency and lack of convergence.

Keywords: Responsible Investment; Sustainability; ESG; Literature review; Sustainable

This article is protected by copyright. All rights reserved.

practice of integrating sustainability criteria (particularly environmental, social, and

governance (ESG) ratings) in investment analysis is known as responsible investing (RI) or

Hockerts, 2017; Friede, 2019).

Similarly, the literature reveals considerable diversity in the conceptual understanding

of the importance of ESG metrics.

continuously disproportionate academic attention on the financial paradigm of SRI,

particularly the financial performance of SRI portfolios. This fixation is a potential

This article is protected by copyright. All rights reserved.

In doing so, the literature continues to exhibit a lack of transparency in addition to

potential future research avenues.

This paper proceeds as follows. Data collection is described in Section 2 and

bibliometric analysis using HistCite™ software is outlined in Section 3. This is followed by a

OR "social* responsible invest*" OR "sustainab* invest*" OR "sustainab* financ*" OR

term was used to expand the search.

This article is protected by copyright. All rights reserved.

Secondly, HistCite™ software (version 12.03.17) was used to conduct bibliometric

This article is protected by copyright. All rights reserved.

paper; the majority of journals are finance related.

The bibliometric analysis of influential SRI articles is used to produce a bibliographic

including citation counts, of these influential articles.

This article is protected by copyright. All rights reserved.

of several key research themes.

in the following section.

4. Research Themes of SRI Literature

4.1 Investor Behavior Studies

conventional investors, as explored in 13 of the influential studies published in

particularly demographics and motivation, is central to understanding their behavior. Similar

characteristics in term of gender, education, and income.

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motivate SRI investment decisions.

effective and targeted promotion of SRI.

patterns to individual investors, especially regarding the use of negative screening or

the selection of ethical boundaries and criteria.

SRI institutional investors is affected by SRI preferences of individual investors is essential

to understand the client–agent relationship.

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the Journal of Business Ethics.

developed. Despite this, there is still no consensus on whether SRI is accepted as a

however, market participants lack a unified perspective as to what constitutes SRI.

of ESG factors and more favorable regulatory frameworks emerge.

Studies into the heterogeneity of SRI mechanisms in local (Schueth, 2003) or

activism, and community investment.

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investee companies. In comparison, shareholder activism or shareholder advocacy relies on

shareholders influencing companies to adopt more sustainable practices. Community

typically interested in financing sustainability projects or sustainability related companies.

While academics broadly agree on the categorization of SRI mechanisms, there is no

consensus on how or whether these mechanisms impact corporate practices.

Despite a lack of empirical evidence (Renneboog et al., 2008b), it is generally agreed

It can be concluded that, conceptually, SRI facilitates sustainable development, even if

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4.3 SRI Performance Studies

journals, representative of the growing acceptance of SRI as an important topic in finance

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OR "social* responsible invest" OR "sustainab invest" OR "sustainab financ*" OR