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Describe the Socially Responsible Investment (SRI) approach and outline the inclusive definition of Socially Responsible Investment (SRI). 

The concept of Social Responsibility

The term social responsibility refers to the social activities done by the company as a part of their social corporate responsibility and the same benefits the society at a larger section. The social responsibility activities of the company involve investing some portion of the company’s profit into the social activities and overall development of the society. The social responsibility is an important initiative taken by the organization at a large to benefit the society.

Social responsibility is the idea that businesses should balance profit-making activities with activities that benefit society. A socially responsible investment is an investment that is considered socially responsible because of the nature of the business the company conducts. It is the most common for businesses that want to be socially responsible, avoid investing in companies that produce or sell addictive substances. In contrast to that, they seek out working with companies that are involved in environmental sustainability and alternative energy/clean technology efforts. Ethically or socially responsible banks and investment funds consider the social and environmental impact of their investments and loans. Institutions like this will usually have a strong attitude towards animal welfare, climate change and Human rights. Social Responsibility is the idea that businesses should balance profit-making activities with activities that benefit society (Ransome and Sampford 2016). There has been considerable growth in socially responsible investments (SRI) in recent decades Transparency is key with these institutions, as they always make sure it is clear to investors and customers, which companies they are involved or not involved with.

In recent times, the organization and companies have increased the social activities of the company in the form and as a Socially Responsible Investment. It is crucial to note that while evaluating the trend between 1995 and 2012 the net amount, which was assets, which was under management in the socially responsible investment strategies deployed which grew about 486% in the trend period. In the same time, it should be noted that the asset under management, which includes the conventional and the non-socially responsible investments, grew up by 376%. However, it is crucial to note that the total assets under management of the company comprised of approximately 11% (Envestnet.com. 2018).

The increase in the Socially Responsible Investment done by the company depends upon the policies and the guidelines of the company and the way for dealing the same. However, it should be noted that the SRI and Non-SRI Fund performance for analysis purpose reviewed were having same mean and the final review drawn (Crifo and Mottis 2016). The analysis was based on the fact that the average socially conscious investment done by the company does not affect and influence the portfolio performance of the company at a large and can be done by the company. The investments done in the form of thee socially responsible investment does not constrain the strategies that are to be deployed by the management of the company and the same should not affect the financial performance of the company. The SRI and Non SRI fund performance evaluation helped us get a overall evaluation and the research reviewed showed that in several cases the SRI investment fund has tried to outperform the Non SRI Investment fund and the same has not affected the performance of the company. Thus, it should be noted that the sustainable form of investing for the institutional investors and the investment considers different criteria such as environmental, social and corporate governance. Thus, evaluating and incorporating these factors in the long term can create long term growth and goodwill for the company (Sparkes 2017).

Particulars

Return_S&P 500

S&P 500 Environmental & Socially Responsible Return

Average

0.0584%

0.0588%

Standard deviation

0.89%

0.88%

Variance

0.01%

0.01%

Annualised variance

0.020003169

0.019418755

Annualised standard deviation

14.14%

13.94%

Annualised Return

14.59%

14.69%

Risk free rate

2.75%

2.75%

Sharpe ratio

83.74%

85.71%

Socially responsible investments

The above table relevantly indicates the overall average rate of return and standard deviation, which has been provided by the SRI and non-SRI Index. The valuation has relevantly indicated that the overall performance of the both the index are calculated for the past eight years, where the data has been taken from 10/1/2010 to 8/14/18. The average returns provided from the Non-SRI index was relevantly indicated an average annualised return of 14.59%, while the SRI Index has depicted a return of 14.69%. The overall performance of the SRI index is relevantly higher than the Non-SRI index, which is directly indicating the deteriorating performance of the index. From the overall analysis it could be detected that the non-risk index is relevantly having higher risk and lower returns in comparison to the SRI index. This relevantly indicates that the non-SRI index has higher risk from investment, which can negatively affect their overall exposure. Lorig and Sircar (2016) mentioned that with the use of SRI stocks the overall investors are relevantly investing in organisations, which comply with the social responsibilities and have high level of concern for the environment. Furthermore, the analysis also helps in detecting the overall risk level, where the non-Risk index has higher risk value than the SRI index, which indicates the level of concern that needs to be maintained by the investors.

From the relevant evaluation it can be detected that the risk attributes of Th SRI index are the level of 13.94%, while the Non-SRI index has the risk level of 14.14%. This relevantly indicates the overall decline in performance of Non-SRI index in terms of SRI Index. The overall returns of SRI index are relevantly higher at the values of 14.69%, while the Non-SRI index has a return of 14.59%. Therefore, it could be understood that the SRI index has higher return generation capability than the Non-SRI index. Jansson and Biel (2014) mentioned that with the use of risk and return capability investors are able to evaluate the investment opportunity and generate high rate of return from investment.

The overall evaluation of the data for the past 8 years has relevant indicated that SRI has higher return, while risk is low in comparison to Non-SRI. From the evaluation it can be detected that the current performance and returns of the Non-SRI and SRI stock is relevantly not that different, which mainly indicates the use of different level of Sharpe ratio formula. The calculation indicates that Sharpe ratio of SRI is at the levels of 85.71%, while the Non-SRI values is at the levels of 83.74%. Therefore, it could be understood that the SRI index has a higher change of obtaining abnormal returns in comparison to Non-SRI index.

Evaluation of SRI funds

Conclusion:

In the past four decades, Social Responsible Investing (SRI) has consciously grown worldwide in regard investors.  In comparison to conformist investment, modern portfolio supporters found that the development strange, as the inhibited investment universe, that SRI are subject to reduce the opportunity of diversification as it becomes the cause of lower risk that is adjusted to returns. The report discussed upon that how and which factors affect the performance of SRI. The report has observed by scrutinizing the qualified performance of funds related to SRI in comparison to conventional funds. The report has been divided into two parts the first part is literature review and the second part is the analysis part in which the performance of SRI and Non-SRI Index has been performed. The performance is measured through standard deviation and average method in order to determine the risk return attributes of the index. The findings concluded that SRI has a higher return with lower risk in compare to Non- SRI index. In the analysis, Sharpe ratio has been used as a tool to evaluate the risk and return ratio. The high Sharpe value of SRI Index directly indicates the high chance of investors getting abnormal returns from investment. Today, economist might not ever find the true monetary effect of the beliefs. The uncluttered and practically indiscriminating approach, the merchandize has to the perception, makes the results from the studies on the pitch uncertain. Through this report, it is concluded that the investors are more prone and have a reliability towards investing their funds to those stocks of the companies who follow Corporate Social Responsibility.

Reference and Bibliography:

Crifo, P. and Mottis, N., 2016. Socially responsible investment in France. Business & Society, 55(4), pp.576-593.

Envestnet.com. (2018). How and Why SRI Performance Differs from Conventional Strategies. [online] Available at: https://www.envestnet.com/files/Campaigns/PMC-SRI-TrustedAdvisor/images/PMC-SRI-0914.pdf [Accessed 14 Oct. 2018].

Jansson, M. and Biel, A., 2014. Investment Institutions' Beliefs About and Attitudes Toward Socially Responsible Investment (SRI): A Comparison Between SRI and Non?SRI Management. Sustainable Development, 22(1), pp.33-41.

Liu, G., Zhang, J. and Tang, W., 2015. Joint dynamic pricing and investment strategy for perishable foods with price-quality dependent demand. Annals of Operations Research, 226(1), pp.397-416.

Lorig, M. and Sircar, R., 2016. Portfolio optimization under local-stochastic volatility: Coefficient taylor series approximations and implied sharpe ratio. SIAM Journal on Financial Mathematics, 7(1), pp.418-447.

Mao, H., Carson, J.M., Ostaszewski, K.M., Luo, Y. and Wang, Y., 2016. Determining the Insurer's Optimal Investment and Reinsurance Strategy Based on Stochastic Differential Game. Journal of Insurance Issues, pp.187-202.

Nguyen, T.T., Gordon-Brown, L., Khosravi, A., Creighton, D. and Nahavandi, S., 2015. Fuzzy portfolio allocation models through a new risk measure and fuzzy sharpe ratio. IEEE Transactions on Fuzzy Systems, 23(3), pp.656-676.

Ransome, W. and Sampford, C., 2016. Ethics and socially responsible investment: A philosophical approach. Routledge.

Revelli, C. and Viviani, J.L., 2015. Financial performance of socially responsible investing (SRI): what have we learned? A meta?analysis. Business Ethics: A European Review, 24(2), pp.158-185.

Sparkes, R., 2017. A historical perspective on the growth of socially responsible investment. In Responsible investment (pp. 39-54). Routledge.

Weber, B., Alfen, H.W. and Staub-Bisang, M., 2016. Infrastructure as an asset class: investment strategy, sustainability, project finance and PPP. John wiley & sons.

Zeng, Y., Li, D. and Gu, A., 2016. Robust equilibrium reinsurance-investment strategy for a mean–variance insurer in a model with jumps. Insurance: Mathematics and Economics, 66, pp.138-152.

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