Assessment Task: Report on Socially Responsible Investment (SRI)

There has been considerable growth in socially responsible investments (SRI) in recent decades. Socially responsible investments currently stand at 26 percent of all professionally managed assets globally (Global Sustainable Investment Alliance, 2016) and in Australia, SRI constitutes almost half of all funds under management (Responsible Investment Association Australasia, 2016). This growth is puzzling in the context of modern portfolio theory, as SRI should amount to a constraint on the feasible set of investments that decreases investors' mean-variance utility. However, alternative explanations have been put forward to justify the SRI choice.

Merton (1987) shows that in the context of incomplete information, if information on social responsibility is concentrated amongst investors that adopt SRI, they can obtain higher returns. Alternatively, investor preferences may differ from the neoclassical model of expected utility, enabling them to trade maximum expected return in their investments for other benefits, such as psychological rewards (Bollen, 2007; Renneboog, Ter Horst, & Zhang, 2008) or superior performance in down markets (Lins, Servaes, & Tamayo, 2017).

A considerable volume of academic studies has examined the relative performance of SRI, with extant Australian studies providing mixed evidence on the ability to generate abnormal returns from (Bauer, Otten, & Rad, 2006; Humphrey & Lee, 2011; Jones, Van der Laan, Frost, & Loftus, 2008; Renneboog et al., 2008).

Required:

You are a team of researchers in an investment bank.

You have been asked by the Wealth Manager to make a recommendation as to whether the firm should move towards creating a Socially Responsible Investment (SRI) product that can be marketed to investors as an Ethical Investment product.

In this report, you need to present the following:

A) Executive Summary
This should provide a summary of your report including a precis of the significant pieces of literature, the main findings of your analysis, and conclusion.

B) Introduction
Introduction should provide a succinct background that places the analysis into context. Also, describe the Socially Responsible Investment (SRI) approach and outline the inclusive definition of Socially Responsible Investment (SRI).

C) Literature Review
Compare and contrast the performance of SRI and conventional (non-SRI) investments from the existing studies.

D) Analysis
The performance data for an SRI Index represented by S&P 500 Environmental & Socially Responsible Index and a conventional index represented by S&P 500 are provided in Group Assignment dataset Excel file. Compare the risk and return of SRI and conventional (non- SRI) investments.

E) Conclusion
Conclude on the basis of analysis and literature review.

Attachment:- Assignment dataset.xls