Is CSR creating shareholder value? An empirical examination of the effect of FTSE4Good Global Index membership Jesper Andersen Drescher, 300545 M.Sc. Finance & International Business Supervisor: Stefan Hirth, Department of Economics, Aarhus University Business and Social Sciences March 2015 Number of characters: 129,301
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Is CSR creating shareholder
value?
An empirical examination of the effect of
FTSE4Good Global Index membership
Jesper Andersen Drescher, 300545
M.Sc. Finance & International Business
Supervisor: Stefan Hirth,
Department of Economics,
Aarhus University Business and Social Sciences March 2015 Number of characters: 129,301
i
Abstract
In an article published in 1970 Milton Friedman claimed that CSR is a misappropriation of shareholder
wealth, through which managers impose a tax on shareholders by diverting corporate earnings towards
causes at their own discretion (Friedman, 1970). The focus on CSR and the related concept of Socially Re-
sponsible Investing has, however, only increased with the years that have passed since Friedman’s original
article, and by the beginning of 2014 more than one in every sixth dollar under management in the US was
invested according to sustainable, responsible and impact investing practices (US SIF, 2014).
This thesis sets out to answer this apparent paradox through the following research question: “Do compa-
nies’ CSR initiatives create or diminish shareholder value?”. This is a question which has been the focal point
of several empirical studies throughout the last 40 years, however, while there seems to be a small over-
weight of studies in favor of a positive relationship no general consensus has yet been reached regarding
the answer to this question.
An empirical analysis of inclusions and exclusions from the FTSE4Good Global Index is used to answer the
research question, and two different methodologies are used for testing this data; the event study meth-
odology and the difference in difference methodology. The event study methodology has already been
used extensively in research on the research question, while the use of the difference in difference meth-
odology is quite novel. The use of the difference in difference methodology therefore contributes to the
current body of empirical research on this relationship.
The results of the empirical analysis are mixed. While the event study finds little evidence of any relation-
ship, the results of the difference in difference study indicate a small decrease in financial performance for
the included companies during the first year of inclusion into the FTSE4Good Global Index. This decrease is,
however, quickly reversed and there is some statistical evidence of the socially responsible companies out-
performing the control group in later years. These results supports the argument that while the costs of
CSR activities are often incurred in the short run, the rewards are first received in a more long-term per-
spective (Eccles & Serafeim, 2013).
In the end it is concluded that the relationship between shareholder value and CSR is perhaps too complex
to allow for any simple inferences to be made regarding the direction of the relationship. Proponents of
strategic CSR view CSR as a strategic concept, which is highly dependent upon a multitude of situational
contingencies (Carroll & Shabana, 2010). Therefore, as with every other area of strategy, CSR can be a
source of value creation if it is well planned, relevant and properly communicated to the relevant
stakeholders. If this is not the case, CSR just might end up as a waste of shareholders’ money as Friedman
1.1. Problem statement ................................................................................................................................ 2
2. Methodology and structure ................................................................................................................ 3
3. Theory ............................................................................................................................................... 5
3.1.3. The relationship between CSR and CFP ...................................................................................... 16
3.1.3.1. The use of the event study methodology ............................................................................ 17
3.1.3.2. The use of other methodologies .......................................................................................... 19
3.2. Socially Responsible Investing and SRI indices .................................................................................... 21
3.2.1. The FTSE4Good Index .................................................................................................................. 23
3.3. Formulation of hypotheses ................................................................................................................. 25
4. Data analysis .................................................................................................................................... 26
4.1. Data description .................................................................................................................................. 26
4.2. Event study .......................................................................................................................................... 27
4.2.1. Data and data treatment ............................................................................................................. 28
4.2.3. Test statistics ............................................................................................................................... 31
Figure 1: Structure of this thesis ....................................................................................................................... 4
Figure 2: The Pyramid of CSR ............................................................................................................................ 9
Figure 3: The Sustainable Value Matrix ........................................................................................................... 13
Figure 4: FTSE4Good assessment model ......................................................................................................... 24
Figure 5: Changes in mean revenue for treated companies and control group ............................................. 48
Figure 6: Changes in mean operating income for treated companies and control group .............................. 49
Figure 7: Changes in mean operating profit margin (%) for treated companies and control group .............. 49
List of tables
Table 1: Studies on the relationship between CSR and financial performance .............................................. 21
Table 2: Overview of event study data process .............................................................................................. 29
Table 3: Overview of inclusions and exclusions in final sample ...................................................................... 31
Table 4: Abnormal return and test statistics of incl. and excl. from the FTSE4Good Global Index ................ 36
Table 5: Depiction of selection process ........................................................................................................... 40
Table 6: Logit model specification and results ................................................................................................ 42
Table 7: mean values of key financial metrics ................................................................................................. 45
vi
Abbreviations
CAR – Cumulative abnormal return
CFP – Corporate financial performance
CSR – Corporate Social Responsibility
DJSI – Dow Jones Sustainability Index
EMH – Efficient Market Hypothesis
R&D – Research and development
ROA – Return on assets
SRI – Socially Responsible Investing
________________________________________________
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1. Introduction
In 1970 Milton Friedman wrote an article for the New York Times Magazine, in which he philosophized
about the social responsibilities of companies. In the article Friedman states that:
“There is one and only one social responsibility of business—to use its resources and engage in activities
designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in
open and free competition without deception or fraud.”
- Milton Friedman, 1970, p. 126
As this quote shows, Friedman did not feel highly about the call for businesses to commit resources to the
social ills of the world. In fact, according to Friedman (1970) Corporate Social Responsibility (henceforth
referred to as CSR) is nothing but a mere misappropriation of shareholder wealth, an agency problem
through which managers divert shareholders’ money towards causes at their own discretion in order to
further their own private agendas. Expenditures on CSR were seen by Friedman as managers imposing a tax
on shareholders and redirecting these funds towards social problems in an undemocratic manner. This also
implies that Friedman did not deny the very existence of social problems, however, in accordance with
Theodore Levitt (1958) he argued that it was the role of the state to address these issues, while business
were intended to focus on the single metric of maximizing shareholder value.
Since the publication of Friedman’s article, the focus on CSR, and its many related concepts such as Stake-
holder Theory, the Triple Bottom Line and corporate sustainability have, however, only increased. Laszlo
and Zhexembayeva (2011) identifies three driving trends behind this increased focus on CSR and sustaina-
bility, namely:
declining resources inflicted by the overexploitation of natural resources.
radical transparency caused by the emergence of countless NGOs as well as the development of
the internet and social media.
increasing expectations towards business processes and products from many different stakehold-
ers including customers, governments, NGOs and also internal stakeholders such as employees and,
not least, investors.
This thesis will specifically focus on the link between CSR and the investor, the owner of the company. As
already stated, Friedman (1970) views CSR expenditures as a misappropriation of corporate funds diminish-
ing the wealth of shareholders, never the less tremendous amounts of funds are today being managed in
so-called Socially Responsible Investment funds (henceforth referred to as SRI funds), and the latest num-
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bers from 2014 suggest that assets of close to $7 trillion are under management in funds using SRI strate-
gies in the US alone (US SIF, 2014), while the number for Europe is roughly €127 billion (Vigeo, 2014). The
number of European SRI funds has furthermore increased from 159 funds in 1999 to 957 funds by 2014
(Vigeo, 2014, p. 7), and the foremost reason for this steep rise in the number of offered SRI funds seems to
be investor demands for such products (US SIF, 2014). While it might be argued that some of these inves-
tors have chosen to invest in these funds due to ethical reasons, there also seems to be a widespread belief
in parts of the investor community that a high degree of CSR activities are not necessarily destroying share-
holder value, but may in fact create value for shareholders (US SIF, 2014).
The increased focus on SRI and the link between CSR and corporate financial performance (henceforth re-
ferred to as CFP) has also lead to a new field of academic studies aimed at uncovering the performance of
SRI investments in comparison to traditional investments, as well as the relationship between CSR and CFP
at the individual firm level. It is this latter question, the nature of this relationship between CSR and share-
holder value, which will be the focal point of this thesis. Is Friedman (1970) right and is CSR actually a mis-
appropriation of corporate funds, or can companies in fact do better in financial terms by doing good (Sen
& Bhattacharya, 2001)?
The question raised above will be sought answered through the use of data on inclusions and exclusions
from the FTSE4Good Global Index. Two different methodologies will be used for testing this data. These
methodologies are the event study methodology and the difference in difference methodology. The event
study methodology has already been used extensively in research on the relationship between CSR and
CFP, and has already previously been used by Clacher and Hagendorff (2012) to test inclusions from the
FTSE4Good Global Index. This thesis will build on this study by using a larger sample of inclusions, while also
considering the effects of exclusions from the index. The use of the difference in difference methodology in
connection to the relationship between CSR and CFP is, unlike the event study methodology, quite novel.
The use of this methodology will therefore contribute to the current body of empirical research on this
relationship by offering a new methodological approach.
The objective of this thesis is more formally described in the problem statement below.
1.1. Problem statement While it has previously been argued that CSR is a misappropriation of shareholder wealth (Friedman, 1970),
the last decades have shown a sharp increase in the amounts of capital invested in so-called SRI funds,
where possible investments are screened based on their activities in terms of both the impact of their core
business, as well as their CSR undertakings (US SIF, 2014; Vigeo, 2014).
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The purpose of this thesis will be to investigate whether economically founded considerations can explain
this development. More specifically this thesis will attempt to answer the following research question: “Do
companies’ CSR initiatives create or diminish shareholder value?”
1.2. Delimitation Suggestions have been made that a singular focus on shareholder value is not sufficiently comprehensive
when considering the impacts of CSR initiatives as it will fail to account for the positive effects on other
stakeholders such as customers, employees and the society in general (McWilliams, et al., 1999). This is a
common argument of normative CSR, which asserts that all stakeholders should be attended to because
their interests are of intrinsic value, and not due to their potential to further the financial interests of
shareholders (Boesso, et al., 2013).
From a cost benefit perspective this critique seems justified if one wishes to analyze the impact of CSR from
an overall societal perspective. This thesis will, however, purely focus on the economic impacts of CSR on
the individual firm level in a more traditional economic sense, and so it will not consider the effects of CSR
on these other stakeholders, but instead focus solely on the effect of CSR on shareholder value.
2. Methodology and structure
This thesis can generally be said to consist of two parts; a descriptive section which establishes the theoret-
ical foundation of the thesis, and an empirical section testing the hypotheses established in the descriptive
section.
Chapter 1, Introduction, has already set the stage by describing the topic of interest as well as the problem
statement, which this thesis will attempt to clarify. This chapter, chapter 2, is dedicated to a review of the
methodological approach of this thesis, while it will also describe the structure of the thesis.
Chapter 3, Theory, will elaborate the theoretical framework of this theses. This chapter contains the de-
scriptive section of this thesis and will describe such topics as CSR and SRI investments. The chapter is
based on a literature review of relevant reports and journal articles. The relevant literature has been col-
lected through an iterative process. An initial search was completed through which both theoretical and
empirical literature was uncovered. Based on the results of this search more relevant literature was uncov-
ered, and lastly the theoretical and empirical literature was complimented by relevant methodological lit-
erature to aid the empirical work of this thesis. This approach is recommended by Uwe Flick (2009).
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Chapter 4 presents the empirical work of this thesis. Data on inclusions and exclusions from the FTSE4Good
Global Index is used to conduct both an event study as well as a difference in difference study on the im-
pact of CSR on financial performance. The methodology regarding both the event study and the difference
in difference study is described in more detail in chapter 4.
The findings of chapter 4 are summarized and evaluated in chapter 5 and chapter 6. Chapter 5 contains a
discussion of the results in which the results of chapter 4 are compared to the findings of the literature
review in chapter 3. Chapter 6 the conclusion to the work of this thesis, while it also discusses possible di-
rections for future research.
The structure of the assignment is visualized in the figure below. A couple of indicative key words regard-
ing the content of each chapter is also depicted in the figure.
Figure 1: Structure of this thesis
•Introduction
•Problem statement 1. Introduction
•Methodology
•Structure
2. Methodology and structure
•CSR
•Socially Responsible Investing and SRI indexes
•Formulation of working hypotheses 3. Theory
•Data description
•Event study
•Difference in difference study 4. Data analysis
•Discussion of results
•CSR as strategy 5. Discussion
•Conclusion
•Suggestions for further work 6. Conclusion
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3. Theory
This chapter presents the theoretical frame for this thesis and is essentially consisting of two parts:
The majority of the chapter is dedicated to an uncovering of the concept of CSR, possible motiva-
tions for companies to engage in such activities and, finally, the empirical evidence of a relationship
between CSR and financial performance.
The second section of this chapter is concerned with the topic of socially responsible investing and
SRI indexes. This section uncovers the current extent of this type of investments as well as the prac-
tices currently used to guide such investments. Finally, this section will also provide a review of the
FTSE4Good Global Index, the index used for the empirical work of chapter 0.
3.1. CSR The emphasis on CSR has never been more widespread than it is today. A survey conducted by KPMG
(2008) estimated, that approximately three-quarters of the global fortune 250 companies had defined cor-
porate sustainability strategies in place by 2008 - a number which is likely to have only increased since
then. The investment community is also highly influenced by the emergence of CSR, and the amount of
assets under management in SRI funds exceeded more than one of every six dollars under management in
the US by the beginning of 2014 (US SIF, 2014). CSR is in fact so widespread these days, that the question
no longer seems to be “whether” companies should commit resources to corporate sustainability but ra-
ther “how” (Robinson, et al., 2011).
However, while CSR is becoming more and more important for companies, there is still much confusion as
to the exact meaning of the term (Dahlsrud, 2006). This confusion is well depicted by the very different
understandings of the term across the Atlantic. In Europe CSR often focuses on proactive policies regarding
the environment and human resources, while CSR in the US is mainly concerned with control of negative
issues such as tobacco, alcohol and gambling and more often concerned with social activities aimed to-
wards the local community (Lopez, et al., 2007).
This section is dedicated to shedding light on the term CSR and related concepts such as the Triple Bottom
Line (Elkington, 1997) and Stakeholder Theory (Freeman, 1984), while also looking into the theoretical mo-
tivations for companies to engage in CSR as well as the emergence of SRI. This chapter will then be con-
cluded by a review of the existing empirical evidence of a relationship between CSR and CFP, which is also
the focal point of this thesis.
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3.1.1. Defining CSR
There are about as many definitions of CSR as there are papers concerning the subject. This section seeks
to provide an overview of these definitions, their differences and, finally, to establish the definition which
this thesis will rely upon.
According to Curran and Moran (2007), the meaning of the term CSR is that:
“Companies are responsible for their social and environmental impacts and should seek to manage and
monitor those impacts accordingly”
- Curran and Moran, 2007, p. 529
This view is supported by Van de Velde et al. (2005), which describes socially responsible companies as
companies, who are putting the social and environmental interests of other stakeholders on par with the
economic interests of shareholders. This focus on social issues and the inclusion of multiple stakeholders in
the decision process is also acknowledged by Ioannou and Serafeim (2014) as traits of CSR.
A more methodological approach to defining CSR is offered by Dahlsrud (2006), who has conducted a litera-
ture review on a large number of definitions of CSR. Dahlsrud (2006) dates the first formal definition of CSR
back to Bowen (1953), however, many definitions has followed since this first definition, and Dahlsrud
analyses a total of 37 different definitions in his article. The analysis of these many definitions identifies
five different dimensions, which figure consistently throughout the definitions, and which together are said
to constitute the concept of CSR. These five dimensions are as follows:
The environmental dimension
The social dimension
The economic dimension
The stakeholder dimension
The voluntariness dimension
The three next sections will be devoted to a review of three different theories and frameworks all related
to the concept of CSR and the 5 dimensions identified by Dahlsrud (2006). These three theories and frame-
works are the Stakeholder Theory (Freeman, 1984), The Pyramid of CSR (Carroll, 1979; Carroll, 1991) and
the Triple Bottom Line framework (Elkington, 1997). These three theories and frameworks have been cho-
sen because they are all central to the understanding of CSR (Carroll & Buchholz, 2014).
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3.1.1.1. Stakeholder Theory
Stakeholder Theory first rose to prominence when R. Edward Freeman published his book “Strategic
Management: A Stakeholder Approach” in 1984. The main argument of Freeman’s Stakeholder Theory is
that traditional management theories, focused on efficiency and effectiveness in bringing products and
services to market, are outdated because they do not take the environment into account – all the external
stakeholders that have an influence on the economic success of the corporation (Freeman, 1984).
According to Freeman the initial paradigm under which businesses operated was focused around trans-
forming inputs into outputs. These first businesses were small family-owned business where management
and ownership were largely overlapping. This paradigm of the business is coined as The Production View of
the Firm (Freeman, 1984). As a result of the industrial revolution businesses grew, the number of employ-
ees increased and management and ownership grew more separated. This new environment with more
internal stakeholders in the form of multiple owners and several employees, forced managers to replace
the existing paradigm with a new understanding of the world in order to succeed. This new paradigm cen-
tered around efficiency to keep the small number of stakeholders satisfied, and Freeman (1984) named this
new paradigm The Managerial View of the Firm.
The argument of Freeman is, that new changes have happened to the business environment, which has
deemed the managerial view of the firm just as obsolete as the production view of the firm. These changes
have affected the traditional internal stakeholders. Both employees and especially customers are increasing
their expectations towards the conduct of not only the company but also of its suppliers, while also owners
have begun to show interest in other aspects of the business than its earnings. The fundamental change,
however, comes from the emergence of a whole new set of stakeholders, the external stakeholders. This
group of stakeholders includes governments, competitors, NGOs, the media and any other individual or
constituency “that contributes, either voluntarily or involuntarily, to its wealth-creating capacity and activi-
ties, and are therefore its potential beneficiaries and/or risk bearers." (Post, et al., 2002, p. 19). Companies
neglecting to acknowledge this new reality, will be irresponsive to these new pressures and are therefore
unlikely to succeed in the market place (Freeman, 1984).
As an alternative to the failing managerial view of the firm, Freeman instead proposes the stakeholder ap-
proach as the new emerging paradigm. Stakeholder Theory and the stakeholder framework offers an ap-
proach and a philosophy for dealing with all these new stakeholders by channeling company resources and
time towards stakeholder dialogue and the formulation of targeted stakeholder strategies. According to
Jones (1995), embracing this new framework is not only beneficial to corporate financial performance, the
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satisfaction of multiple different groups of stakeholders is instrumental for the financial performance of the
company.
The Stakeholder Theory has, however, also received criticism. According to Jensen (2002), Stakeholder
Theory implies that managers should: “make decisions so as to take account of the interests of all the
stakeholders in a firm” (Jensen, 2002, p. 236). However rational this might seem, it is inferior to traditional
value maximization because it does not define one single metric to optimize, which means it is unsuitable
as a guide for rational behaviour (Jensen, 2002). According to Jensen the two concepts are, however, not
entirely at odds, as he acknowledges that the value of the firm is highly dependent on several
constituencies such as the employees, regulators, suppliers and not least customers, and that long term
value-maximization cannot be achieved if any of these important stakeholders are mistreated. This criticism
is therefore not so much directed at the normative content of the stakeholder theory, but more the lack of
a metric by which to measure its effectiveness (Jensen, 2002).
In regards to the concept of CSR and the five dimensions identified by Dahlsrud (2006), it is obvious that the
Stakeholder Theory has had a clear influence on the stakeholder dimension of Dahlsruds framework.
3.1.1.2. Carroll’s Pyramid of CSR
One of the most influential frameworks for the definition of CSR is presented in Carroll’s Pyramid of CSR.
The concept of the four-part pyramid of CSR was first publicized in Carroll’s article “The Pyramid of Corpo-
rate Social Responsibility: Toward the Moral Management of Organizational Stakeholders” (1991), howev-
er, the four elements of the pyramid were already mentioned in an article dating back more than a decade
from this time (Carroll, 1979).
In his initial article, Carroll (1979) bases his definition of CSR on a review of existing views on CSR of that
time, and articulates a definition of CSR constituted of four domains: the economic responsibilities, the
legal responsibilities, the ethical responsibilities and the discretionary responsibilities.
These four domains also appear in the 1991 article, although the latter, the discretionary responsibilities, is
renamed as the philanthropic responsibilities. It is from these four domains that the Pyramid of CSR is con-
structed. A visual representation of Carroll’s pyramid is shown below in Figure 2.
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Figure 2: The Pyramid of CSR
Source: Carroll, 1991, p. 42
Economic responsibilities:
The foundation of Carroll’s model is constituted by the economic responsibilities of the firm. The main ob-
jective of businesses is to supply the goods and services demanded by society, and their ability to remain
profitable indicates their ability to satisfy this basic responsibility. Profitability is also a requirement for
staying in business in the long run, and therefore also a precursor for providing job opportunities for work-
ers, as well as a precondition for contributing to society through any of the three other domains in Carroll’s
model (Carroll, 1991). The recognition of the economic responsibilities as the basic social responsibility of
businesses is furthermore an acknowledgement of the view presented by Friedman (1970), namely that
companies have a social responsibility towards their shareholders.
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Legal responsibilities:
The next domain of Carroll’s model consists of the legal responsibilities of the business. Carroll’s argument
for the legal responsibilities of businesses is grounded in the concept of a so-called “social contract” exist-
ing between the greater society and the business (Carroll, 1979). The “social contract” sets out the rules to
which the company must adhere in exchange for the right to undertake its productive role in the economic
system. These laws are for example anti-competitive laws, anti-bribery laws and laws regarding the issu-
ance of truthful financial statements, and while it might seem a truism that companies adhere to these
rules, several examples can be given of companies failing to satisfy these requirements.
Ethical responsibilities:
The ethical responsibilities of the company describes those norms to which society expects the company to
adhere, although no legislative restrains have been put in place. The complexity of the modern world, es-
pecially for large multinational corporations, entails that the difference between this domain and the legal
domain is often blurred. Carroll acknowledges this, and he also refers to the legal responsibilities as “codi-
fied ethics” (Carroll, 1991), just as one might refer to the ethical responsibilities as “un-codified legislation”.
Critics of CSR might argue, that companies choosing to conform to these ethical expectations are in fact
voluntarily limiting their available actions to a larger extent that what is required by law. Often ethical con-
siderations could, however, be seen as a forerunner of future legislation (Carroll, 1991), which has been the
case both in terms of environmental legislation and not least the abolishment of child labor in most parts of
the world. This dynamic relationship between the different domains of Carroll’s model, is one of the rea-
sons why CSR has been heralded as “enlightened self-interest” (Kramer & Porter, 2006), because socially
responsible companies can preempt new legislation and get a head start on competitors, which in turn
could grant them a competitive advantage.
Philanthropic responsibilities:
The last domain of Carroll’s model is the philanthropic responsibilities of the firm. These responsibilities
include such actions as contributions to charitable causes, and it might be contested whether this domain is
actually a responsibility, since companies are not perceived as unethical if they do not adhere to these “re-
sponsibilities” (Carroll, 1979). For many individuals it is, however, this last domain which, together with the
ethical responsibilities, have become synonymous with CSR. The perception of CSR as encompassing only
the latter two domains of Carroll’s model has also been acknowledge by Carroll himself (Carroll & Shabana,
2010). While the economic and legal responsibilities have become required to the point where they are
taken for granted, the ethical responsibilities are expected, and the philanthropic responsibilities are mere-
ly desired by society (Carroll & Shabana, 2010).
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In relation to Dahlsrud’s (2006) framework, the Pyramid of CSR has especially contributed by acknowledg-
ing the economic responsibilities of businesses as part of the social responsibilities of these.
3.1.1.3. Triple Bottom Line
The influences of the Triple Bottom Line are seen more clearly in Dahlsrud’s five dimensions, than what is
the case for the other two theories treated in this chapter, and these links will also become apparent from
the description of the Triple Bottom Line framework as presented below.
The Triple Bottom Line framework originates from John Elkington’s book “Cannibals with Forks - the Triple
Bottom Line of 21st Century Business” published in 1997, however, the Triple Bottom Line is based on the
three P’s concept articulated by Elkington already in 1994 (The Economist, 2009).
The 3 P’s stand for People, Planet and Profit. Elkington (1997) argues that the social responsibilities of busi-
nesses are towards these three constituents. The people dimension concerns both the employment prac-
tices of the business as well as impacts the firms' practices have on the community in which the company
operates. In relation to Dahlsrud’s framework, this dimension is closely related to what Dahlsrud coins “The
Social Dimension”. The planet relates to the company’s environmental performance; its use of scarce re-
sources as well as other externalities the company might be inflicting on the planet. This dimension is of
course closely related to Dahlsrud’s environmental dimension. The last dimension of Elkington’s framework
is the profit dimension. This dimension is also present in Carroll’s Pyramid of CSR, signifying that both of
these frameworks acknowledges profitability as a social responsibility of businesses.
The primary claim of Elkington’s Triple Bottom Line framework is that while profitability is certainly a re-
sponsibility of any business, modern businesses pay undue focus to this latter dimension, the profit dimen-
sion, on expense of the other two dimensions. This narrow focus provides managers with an incentive to
sacrifice environmental and social performance in order to boost the financial bottom line in the short run.
This type of thinking is, however, detrimental to shareholder wealth in the long term.
3.1.1.4. This thesis’ understanding of CSR
As the reviews presented above show, CSR is a broad and complex term with several dimensions. The
above descriptions of the theories and frameworks of Dahlsrud (2006), Freeman (1984), Carroll (1979;
1991) and Elkington (1997), do however also highlight, that many commonalities exists between these dif-
ferent concepts, and it should be duly noted, that many of the concepts introduced in this chapter have
developed concurrently. The obvious overlaps between the different concepts bears witness to this fact,
and the different concepts should rather be seen as complimentary than being seen as being at odds with
each other.
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Several conclusions regarding the nature of CSR stands out from the above literature review. Some of the
most prominent of these conclusions are:
CSR is related to the interaction between the company and society at large. When the interests of
all different stakeholders is being included in corporate decision making, then the business is
showing social responsibility (Freeman, 1984).
While the fundamental responsibility of businesses is to remain profitable by producing goods
demanded by society (Carroll, 1979; Carroll, 1991), CSR encompasses more than the financial per-
spective. CSR is also related to both the social bottom line of the firm, the people dimension, as
well as the environmental bottom line, the planet dimension (Elkington, 1997). A truly responsible
company should target positive returns on each of these three dimensions, and at the very least
try to manage its impacts in all three aspects.
Lastly, for a company to be considered socially responsible, it should be both profitable while also
adhering to the rules set out by legislation (Carroll, 1979; Carroll, 1991). CSR is, however, more
than just delivering on these two parameters. If a company wishes to be considered truly respon-
sible, it needs to go beyond these basic requirements and show ethical conduct on a voluntary ba-
sis, by doing what is right and not just what is obligatory (Dahlsrud, 2006).
The definition of CSR for the purpose of this thesis is generally in accordance with the points presented
above. The importance of the voluntariness dimension should, however, be stressed. While it will not be
contested that the responsibilities contained within the economic and legal domains of the Pyramid of CSR
are prerequisites for being considered a responsible company, most companies do adhere to these princi-
ples. The voluntariness dimension entails that firms should show commitment beyond the regulatory re-
quirements, and for companies to truly be considered responsible, and eligible for SRI indexes such as the
FTSE4Good, they need to show such extended commitment. This emphasis on the voluntariness dimension
is also in agreement with the definitions of CSR as presented by McWilliams and Siegel (2001) and
McWilliams et al. (2006). In these papers CSR is defined as “..situations where the firm goes beyond compli-
ance and engages in actions that appear to further some social good, beyond the interests of the firm and
that which is required by law” (McWilliams, et al., 2006, p. 1). No one has, meanwhile put it better than
Davis (1973). According to him: “social responsibility begins where the law ends. A firm is not being socially
responsible if it merely complies with the minimum requirements of the law, because this is what any good
citizen would do. A profit maximizing firm under the rules of classical economics would do as much. Social
responsibility goes one step further. It is a firm's acceptance of a social obligation beyond the requirements
of the law.” (Davis, 1973, p. 313).
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More generally, this thesis’ understanding of CSR is congruent with The Commission of the European
Communities, which defines CSR as: “A concept whereby companies integrate social and environmental
concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”
(Commission of the European Communities, 2001).
A final dimension of CSR which is of the utmost importance in relation to this thesis, and which therefore
needs to be discussed, concerns the possibility of creating shareholder value through CSR. In the view of
Milton Friedman (1970) CSR is defined as situations where management diverts corporate resources to-
wards objectives at their own discretion, at the expense of the shareholders. As a result of this, Friedman
does not view CSR initiatives which creates shareholder value, what is known as strategic CSR (Baron,
2001), as actual CSR. Such activities causing pareto improvements are instead viewed by Friedman as part
of the normal business activities, which ultimately makes his statement, that CSR will always destroy share-
holder value, a self-fulfilling prophecy.
Unlike Friedman (1970) this thesis does not agree with this contention. This type of zero sum-thinking ex-
cludes any sort of business case for CSR. This thesis is instead in agreement with the view presented by
McWilliams and Siegel (2001), in which they encourage that CSR initiatives are measured through cost-
benefit analysis, which will secure a maximization of shareholder value and help avoid initiatives which
destroy shareholder value. Only in these cases where both society and the company are both better off
does CSR become truly responsible, and it is only in these cases that CSR does not come to odds with the
fundamental economic responsibilities of businesses as formulated by Carroll (1979).
Figure 3: The Sustainable Value Matrix
Source: Laszlo (2003, p. 151)
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A good depiction of this sort of outcomes is presented in Figure 3 above, which is taken from the book “The
Sustainable Company: How to Create Lasting Value through Social and Environmental Performance” (Laszlo,
2003). In terms of this matrix the really interesting initiatives are found in the upper right corner where
both shareholder and stakeholder value increases.
3.1.2. Motivations for engaging in CSR activities
While the previous section set out to clarify a definition of CSR, the purpose of this section is to shed light
on what motivations the academic literature has uncovered to justify CSR. Many arguments have been
presented throughout the last few decades, and some of these are built on the opinion, that companies
ought to divert resources towards the social issues of society simply because it is the moral thing to do. This
argument is known as the “moral obligation” (Kramer & Porter, 2006). Since this thesis tries to establish the
relationship between CSR and CFP, this section will not be focused on this sort of reasoning, but will instead
exclusively consider arguments, which are grounded in traditional economic thinking. That is: only argu-
ments for CSR, which are based on financial grounds will be entertained in this chapter.
The motivations for companies to devote resources to CSR are many, and many of these have their roots in
other theories, such as the generic strategies of Porter (1980) and the Resource Based View of the Firm
(Wernerfelt, 1984). In order to give a structure to the presentation of these many different motivations,
they will be arranged according to whether they are internally or externally focused. Internally focused
motivations concentrate on benefits accruing to internal stakeholders of the firm, and are often closely
related to the Resource Based View of the Firm (Wernerfelt, 1984). Externally focused motivations consider
how companies can leverage CSR in relation to external stakeholders such as consumers. These motivations
are often closely associated with which the generic strategies of Porter (1980). The distinction between
these two types of motivations is also made in Orlitzky et al. (2003).
3.1.2.1. Externally focused motivations
The most prominent externally oriented argument in favor of CSR is focused on the resulting reputational
effects (Fombrun & Shanley, 1990). In their paper from 1990, Fombrun and Shanley study the determinants
of the reputations of 292 of the largest U.S companies, and finds a significant positive relationship between
corporate contributions to charities and charitable funds and corporate reputation. Such reputational ef-
fects of CSR are argued to enable companies to charge premium prices for their products (Milgrom &
Roberts, 1986), while it could also have the potential to increase the brand loyalty of consumers
(Bhattacharya & Sen, 2004). In this way the reputational effects of CSR are closely related to the generic
strategy of differentiation (Porter, 1980). The reputational effects are, however, also shown to have the
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ability to affect several other types of stakeholders besides customers. Reputations can for example enable
companies to attract the most talented members of the workforce (Stigler, 1962), as well as enhance the
ability to gain external funding from capital markets (Beatty & Ritter, 1986; Cheng et al., 2014). Of great
importance to this thesis, it has also been shown that the reputational effects of CSR has the potential to
increase the attractiveness of the firm towards the investor base (Fombrun & Shanley, 1990). One mediator
of this link between CSR and the investor community are so-called SRI indexes such as the FTSE4Good Index
or the Dow Jones Sustainability Index (Henceforth referred to as DJSI). By being included into such indexes
companies can reach a broader investor base, since several SRI funds are not conducting their own screen-
ings, but are instead relying upon the screening process of these aforementioned SRI indexes to guide their
investment decisions (Robinson, et al., 2011).
Closely related to the reputational argument for CSR is the license-to-operate argument. This motivation is
directed more towards companies in industries with strenuous stakeholder relationships (Kramer & Porter,
2006). In such industries CSR is not so much leveraged as a source of differentiation, but instead a means to
gain acceptance of other harmful activities (Carroll & Shabana, 2010).
A final external motivation for firms to adopt CSR practices relates to stakeholder management. This moti-
vation is based on the idea that self-discipline and active dialogue can alleviate possible future threats to
the viability of the company. Examples of such threats may by the passing of restricting legislation (Carroll
& Shabana, 2010), or costly consumer boycotts (Moskowitz, 1972). Jones (1995) developed a model, which
concluded that companies conducting business with stakeholders based on trust and strong ethics,
achieved a competitive advantage through lasting relationships with these stakeholders.
3.1.2.2. Internally focused motivations
Besides these abovementioned externally oriented motivations, the academic literature has also uncovered
several internally driven motivations for companies to engage in CSR. A literature on this topic has identi-
fied three general branches of this research: cost reductions (Berman, et al., 1999; Carroll & Shabana,
2010), better risk management (Waddock & Graves, 1997) and finally increased innovativeness and adapt-
ability (Hart, 1995; Orlitzky, et al., 2003).
According to Berman et al. (1999, p. 489) “being proactive on environmental issues can lower the costs of
complying with present and future environmental regulations”, and “enhance firm efficiencies”. This view is
supported by Carroll and Shabana (2010), who finds that CSR can help to build competitive advantage
through a cost leadership strategy. Such cost savings might be achieved through more efficient uses of
inputs, or substitution of some inputs towards less strained resources.
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The risk management argument is closely related both to the argument of better stakeholder management,
as well as the claim of CSR leading to cost reductions. According to Waddock and Graves (1997) CSR activi-
ties may decrease the variability of future cash flows, because the likelihood of adverse effects such as con-
sumer boycotts or legal disputes is reduced, while possible unforeseen costs arising from new legislation or
shortages of scarce inputs are less likely to occur.
The last argument; increased innovativeness and adaptability is grounded in the Resource Based View of
the Firm (Wernerfelt, 1984). According to this argument, investments in CSR activities may lead to the de-
velopment of new resources and capabilities, especially when the firm’s environment is dynamic (Hart,
1995). Increased awareness through stakeholder management may also lead to better adaptability, since
managers will be more adapt at scanning and processing external changes (Orlitzky, et al., 2003)
As it was also the case in terms of the definitions of CSR in chapter 3.1.1, the individual motivations are to
some extent overlapping, which is especially the case for the internally-driven motivations. The categoriza-
tion presented in this chapter does, however, help by providing a structured view on the array of different
motivations discussed in the academic literature.
The next section will look beyond the theoretical arguments for investments into CSR, and will instead be
dedicated to a review of the existing empirical evidence of an actual relationship between CSR and CFP.
3.1.3. The relationship between CSR and CFP
Research into the relationship between CSR and CFP has been undertaken ever since the 1970’s, and for all
these years the discussion relating to this relationship has focused on one central tenet, namely whether
CSR creates or diminishes shareholder value.
The first research into the relationship was carried out by Moskowitz (1972). In his study Moskowitz named
14 companies as good investment opportunities based on the claim that each of these companies excelled
in terms of their social awareness. He then calculated the appreciation of these companies’ stocks during
the first half of 1972, and after finding an average appreciation of 7.28 percent for these companies, which
was larger than the appreciation of any of the major stock indices in the same period, Moskowitz concluded
that CSR was creating value without, however, conducting any form of risk adjustment of his results.
In his study from 1975 Vance provided the first empirical evidence for the opposing view, that socially re-
sponsible firms suffers under a competitive disadvantage in relation to firms that do not attend to the so-
cial needs of society. Basing his study on the rankings of 45 leading companies rated in accordance to their
perceived social responsibility by businessmen and students, Vance found a negative correlation between
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the perceived degree of social responsibility and financial performance. However, just as it was the case
with Moskowitz’s paper (1972), no adjustment was conducted to account for differences in market risk.
Alexander and Buchholz (1978) were the first to conduct an examination of the subject on a risk adjusted
basis. By using the same sample as Vance (1975), and correcting the monthly return for each stock for the 5
year period from 1970 unto 1974 for market risk through the Capital Asset Pricing Model, limited evidence
was found for a relationship between stock price and the social responsibility rankings (Alexander &
Buchholz, 1978). Alexander and Buchholz (1978) did, however, argue themselves that under the assump-
tions of market efficiency, any abnormal gain or loss accruing from social responsibility, would be reflected
in the share price shortly after the information was available to stock markets. If this is indeed the case, the
methodology used would therefore not be able to detect any potential gain or loss.
Since these three studies numerous others have followed. Different methodologies have been used as well
as more advanced statistical approaches, however, no consensus has yet been reached as to the actual
relationship between CSR and financial performance. The proponents of a negative relationship claim that
companies investing in CSR are at a competitive disadvantage since they incur costs that more traditional
companies are not facing (Aupperle, et al., 1985). In opposition to these arguments are the proponents of a
positive relationship between CSR and financial performance. The arguments behind a positive relationship
are many, and several are mentioned in chapter 3.1.2 above.
The research on the relationship between CSR and financial performance since these first early papers can
generally be divided into two groups: research based on the use of event studies and research based on
other statistical approaches such as examinations of accounting numbers or returns on investment portfo-
lios. The body of research seems to be approximately evenly distributed between these two strands.
3.1.3.1. The use of the event study methodology
The most prominently used research methodology for investigating the relationship between CSR and fi-
nancial performance is the event study methodology. This methodology examines short run changes in
stock price following some unanticipated event. Because CSR is such an abstract subject, the identification
of relevant events signaling a heightened focus on CSR are hard to come across. Some of the first event
studies on the subject used divestments from South Africa during the Apartheid as the event indicator.
(Posnikoff, 1997; Teoh et al., 1999; Wright & Ferris, 1997). These studies found mixed results, with Posni-
koff (1997) finding a positive result, Wright & Ferris (1997) finding a negative result and Teoh et al. (1999)
finding no significant relationship. The appropriateness of using divestments from South Africa as the event
indicator might, however, be up for discussion. One of the fundamental requirements for using an event in
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an event study, is that no confounding events are taken place, and the divestment from South Africa is ar-
guably a signal of more than just a company’s commitment to CSR, as it also signals the withdrawal from a
large market. The use of this specific event might therefore lead to a negative bias on the results.
Later event studies have primarily relied on another type of event indicator; inclusions and exclusions from
SRI indexes such as the FTSE4Good Index, the DJSI and the Calvert Social Index. Just as it was the case for
the first event studies, the results of these have been mixed.
Through an examination of inclusions into the DJSI from 2003 until 2007, Robinson et al. (2011) were able
to find evidence of a significantly positive reaction to stock prices. In a similar study of both inclusions and
exclusions from the DJSI from 2002 until 2008 no robust significant results were found for neither inclu-
sions nor exclusions (Wai & Cheung, 2011). Similar mixed results were also found by Doh et al. (2010), who
considered inclusions and exclusions from the Calvert Social Index. The results here indicated no significant
positive reaction following inclusions, while exclusions where found to be followed by significant negative
stock price reactions. Doh et al. (2010) argued that these findings were due to companies publicizing infor-
mation prior to inclusions, which diluted the market response, while not doing the same prior to exclusions.
Of particular interest to this thesis are the two studies by Curran and Moran (2007) and Clacher and Ha-
gendorff (2012), since both of these studies are based on the FTSE4Good Index series. Curran and Moran
(2007) considers both inclusions and exclusions from the FTSE4Good UK Index, finding partially significant
results following inclusions while not finding any significant reaction following exclusions. The Study by
Clacher and Hagendorff (2012) examines effects following inclusions to the FTSE4Good Global Index, which
is the same index used for the empirical work of this thesis. The article by Clacher and Hagendorff does,
however, only use data concerning inclusions from 2001 until 2008, which is less than the range used for
this thesis which uses data from 2001 until 2013. Furthermore the effect of exclusions is not considered.
The results of Clacher and Hagendorff (2012) indicate a significant positive reaction following inclusions,
although the relationship is only detected for the announcement date, and not when longer event windows
are considered.
It can be argued that this second type of event indicators used in latter event studies might also be subject
to a bias, since the event indicator also indicates a listing of the company in question. This possibility has,
however, been examined by Robinson et al. (2011) who found no significant relationship between the ef-
fect of being included into the DJSI and whether the company being included was already part of a major
stock index such as the S&P 500. This serves to show, that the positive relationship is not only a listing ef-
fect (Robinson, et al., 2011).
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3.1.3.2. The use of other methodologies
As already pointed out earlier, the studies on the relationship between CSR and financial performance,
which has not relied on the use of an event study methodology, have generally either relied on the use of
accounting numbers or the performance of investment portfolios.
An example of the latter is presented in an article by Van de Velde et al. (2005). By constructing four differ-
ent portfolios based on corporate social responsibility scores from the CSR rating agency Vigeo, the re-
searchers found that high sustainability-rated portfolios outperformed low sustainability-rated portfolios
on a style-adjusted basis. While positive the results were, however, not statistically significant. Similar re-
sults are found by Consolandi et al. (2009).
One of the first studies based on accounting numbers was done by Bowman and Haire (1975). After ranking
82 firms into three groups ranging from low to high based on the number of lines devoted to CSR in their
annual reports, an inverse u-shaped relationship was uncovered, in which the companies with medium
ratings showed the highest profitability, while the companies with a low rating showed the poorest per-
formance. The study did, however, suffer from several methodological shortcomings, such as the use of
return-on-equity to gauge profitability even though this measure is influenced by the company’s capital
structure.
Other studies relying on the use of accounting numbers include Cochran and Wood (1984), Aupperle et al.
(1985) and Waddock and Graves (1997). Cochran and Wood (1984) found only marginally significant evi-
dence for a positive relationship between corporate social responsibility and the market-to-book value of
equity ratio, while Aupperle et al. (1985) were not able to find any significant evidence of a relationship
between CSR and firm profitability as measured by the risk adjusted return-on-assets. The last-mentioned
article by Waddock and Graves (1997) uses KLD data from 1990 for S&P 500 companies and return on as-
sets from these same companies in 1989 and 1991, and finds support of a reciprocal relationship between
CSR and financial performance; KLD ratings for 1990 showed a significant positive correlation with the re-
turn on assets (Henceforth referred to as ROA) from 1989, while the ROA from 1991 showed a significant
positive relationship with KLD ratings from 1990.
Another approach was taken by Ioannou and Serafeim. Based on the assumption that recommendations
from stock analysts have a significantly positive influence on stock prices, Ioannou and Serafeim (2014)
investigated how stock analysts’ recommendations of companies depends on CSR strengths and concerns
as measured by KLD ratings over time. The results indicated that from 1997 and onwards a significantly
positive relationship emerged.
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Of specific interest towards the second part of the empirical work of this thesis, the difference in difference
study, is the paper of Lopez et al. (2007). Using a sample of 110 companies, 55 companies included in the
DJSI and 55 similar, matched companies which were not included, they were able to find significant reduc-
tions in the profitability of companies included in the DJSI. These changes did, however, not apply to
measures of revenue, and the changes were therefore considered to stem from the increased costs related
to comply with the standards for inclusion into the DJSI. Furthermore, they found that the changes in prof-
itability seemed to disappear over time, which begs the question as to whether the relationship reverses
(Lopez, et al., 2007). These findings highlight the fact, that while the costs of CSR activities are often in-
curred in the short run, the rewards are first received in a more long-term perspective (Eccles & Serafeim,
2013). This idea adds support to the use of an event study methodology, since changes in stock price theo-
retically should reflect changes in all future cash flows, and not just cash flows in the short-term.
The results of the previous studies on the relationship between CSR and financial performance are summa-
rized in table 1.
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Table 1: Studies on the relationship between CSR and financial performance Author(s) Methodology CSR event / action Results
Posnikoff (1997) Event study Divesture from South Africa
Positive stock price reaction following divestment
Wright & Ferris (1997)
Event study Divesture from South Africa
Negative stock price reaction following divestment
Teoh et al. (1999) Event study Divesture from South Africa
Neutral stock price reaction following divestment
Robinson et al. (2011)
Event study Incl./excl. from SRI in-dex
Positive stock price reaction following inclusion
Wai & Cheung (2011)
Event study Incl./excl. from SRI in-dex
Neutral stock price reaction following both incl. and excl.
Clacher & Ha-gendorff (2012)
Event study Incl./excl. from SRI in-dex
Positive stock price reaction following inclusion
Curran & Moran (2007)
Event study Incl./excl. from SRI in-dex
Small positive reaction following incl./ neutral reaction to excl.
Doh et al. (2010) Event study Incl./excl. from SRI in-dex
Neutral reaction following incl./ negative reaction to excl.
Van de Velde et al. (2005)
Regression analysis
Performance of stock portfolio
Positive relationship between returns and CSR
Consolandi et al. (2009)
Regression analysis
Performance of stock portfolio
Neutral relationship between returns and CSR
Bowman & Haire (1975)
Regression analysis
Content analysis of an-nual reports
Inverse U-shaped relationship between CSR and return on equity
Cochran & Wood (1984)
Regression analysis
Content analysis of an-nual reports
Small positive relationship between CSR and market-to-book value of equity.
Aupperle et al. (1985)
Regression analysis
Social orientation of company CEO
Neutral relationship between CSR and risk adjusted return on assets
Waddock & Graves (1997)
Regression analysis
KLD data Positive reciprocal relationship between CSR and return on assets
Ioannou and Serafeim (2014)
Regression analysis
Analysts’ recommenda-tions / KLD data
Positive relationship between CSR and analysts’ recommendations
Lopez et al. (2007)
Difference-in-difference
Incl./excl. from SRI in-dex
Reductions in profitability following in-clusion into the DJSI
As the above table show, there seems to be a small overweight of results indicating a positive relationship
between CSR and CFP. This is supported by the findings of a meta-analysis conducted by Orlitzky et al.
(2003), which also finds some evidence of a positive relationship between the two concepts.
3.2. Socially Responsible Investing and SRI indices As it has already been stated in the introduction, tremendous amounts of funds are today being managed
in so-called SRI funds, with the latest numbers suggesting that assets of close to $7 trillion are under man-
agement in funds using SRI strategies in the US alone (US SIF, 2014), while the number for Europe is roughly
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€127 billion across 957 different funds (Vigeo, 2014). This section will examine the concept of SRI, its histo-
ry and how it is applied in reality.
According to a report issued by Mercer Investment Consulting (2007) Socially Responsible Investing, or just
SRI, is defined as: “an investment process that seeks to achieve social and environmental objectives along-
side financial objectives” (Mercer, 2007, p. 10). This definition is in line with Van de Velde et al. (2005),
which defines socially responsible investment as an investment practice which includes considerations re-
garding social, environmental or ethical conditions in investment decisions through the application of both
negative and positive screens (Van de Velde, et al., 2005). It is evident that these definitions are closely
influenced by the Triple Bottom Line of Elkington (1997).
The inclusion of these types of considerations in investment decisions has been around for more than 40
years. According to Fowler and Hope (2007), the first SRI mutual fund is considered to have been the PAX
World Fund. This fund was first launched in 1971 and incorporated social responsibility considerations by
conducting a negative screen of military-related stocks.
SRI indices are, however, a much more recent phenomenon, with the KLD Domini 400 Social Index
launched as the first SRI index in 1990 (Guerard, 1997). Since the launch of the KLD Domini 400 Social Index
things have, however, developed quickly, and today both global and regional SRI indices are being offered
from not only KLD Analytics but also Calvert Group, Vigeo, Dow Jones and not least FTSE, which administers
the FTSE4Good Global Index used in this thesis (Fowler & Hope, 2007). The driver behind this large increase
in the number of SRI indices is seemingly the increasing number of funds managed by SRI mutual funds,
which again is driven by a demand for such investments (Fowler & Hope, 2007).
The selection process regarding what companies to include in SRI indices can generally be distinguished by
whether a positive or negative screening process is applied. While negative screening processes relies on
exclusion of companies due to an inability to live up to certain minimum requirements, such as not being
active in certain industries, a positive screening process is based on choosing only companies performing
extraordinary on some key parameters. Since a positive screening process is much more difficult and time
consuming to apply, the most basic approach applied in most SRI indices is a negative screen. The use of
negative screening is used as the primary approach for SRI indices administered by Calvert Group and KLD,
while also featuring heavily in the FTSE4Good index series (Fowler & Hope, 2007).
Acknowledging that most small SRI mutual funds are unable to apply positive screening processes due to
financial and time constraints, have although led several SRI indices, who offers licensing to fund managers,
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to incorporate some elements of positive screening in their inclusion criteria in order to attract licensees
(Fowler & Hope, 2007).
3.2.1. The FTSE4Good Index
The FTSE4Good index series was first launched in July 2001, when the constituents of the four tradable
indexes: the FTSE4Good UK 50 Index, FTSE4Good Europe 50 Index, FTSE4Good US 100 Index and the
FTSE4Good Global 100 Index, as well as the constituents for two of the four benchmark indexes: the
FTSE4Good UK Index and the FTSE4Good Europe Index, were announced (FTSE, 2011). This launch was
quickly followed with the launch of further two benchmark indexes, the FTSE4Good Global Index and the
FTSE4Good US Index, in November 2001 (Sustainability Investment News, 2001). Since then one more trad-
able index, the FTSE4Good Japan Index, has been added to the index family (FTSE, 2014d).
Three main objectives guided the initial establishment of the indexes. First, a wish to provide investors with
information regarding the social responsibility practices of companies based on a wide range of objective
benchmarks. Second, to establish benchmarks for SRI mutual funds. And lastly, to promote further CSR