In the past, Socially Responsible Investment (SRI) has been justified largely by empirical evidence showing SRI returns to be broadly similar to returns on conventiol (non-SRI) investments. There are exceptions, however, and in any case this empirical evidence is based on returns in normal economic times. The extent to which it applies in recessions such as the current global fincial crisis (GFC) has so far been unclear. Our empirical alysis shows that, before the GFC, SRIs intertiolly yielded even higher risk-adjusted returns than conventiol investments, although SRIs in Australia significantly under-performed conventiol investments in terms of risk-adjusted returns. Since the GFC, both in Australia and world-wide, SRIs have significantly under-performed conventiol investments in terms of risk-adjusted returns. These results confirm that traditiol investment fund trustees and magers risk breaching their fiduciary duties if they invest in SRIs during times of economic downturn, suggesting perhaps a need for statutory reform if SRI is to be encouraged within the investment community. Reform could include the introduction of a business judgment rule, greater disclosure for SRI, a statutory indemnity for trustees investing in SRIs, and tax breaks and subsidies.
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