Forthcoming
Article
Journal of Finance

The Allocation of Socially Responsible Capital

Format:Print

Abstract

Portfolio allocation decisions increasingly incorporate social values. We develop a tractable framework to study how competition between investors to own socially valuable assets affects social welfare. Relative to the most common social-investing strategies, we identify alternative strategies that result in higher impact and higher financial returns. We identify strategies for investors to have impact when impact is difficult to measure. From the firm perspective, increasing profitability can have a greater impact than directly increasing social value. We present new empirical evidence on the social preferences of investors that demonstrates the practical relevance of our theory.

Keywords

Socially Responsible Investing; Investment Portfolio; Welfare; Social Issues; Investment Return

Citation

Green, Daniel, and Benjamin N. Roth. "The Allocation of Socially Responsible Capital." Journal of Finance (forthcoming). (Pre-published online January 22, 2025.)