Why responsible investment falls short of its purpose and what to do about it

Abstract

Purpose

The purpose of this paper is to demonstrate failures of self‐regulation among RI actors following the current economic crisis. It also seeks to propose specific regulations for the investment business. The paper questions whether financial capitalism can support sustainability.

Design/methodology/approach

The paper summarizes the crisis; defines what is at stake; critically reviews the various forms of responsible investment; describes conflicts of interest in CSR and RI; and suggests regulatory measures to correct systemic problems. It tests RI/SRI/ESG against the reality of portfolio construction, and identifies the implications of their shortcomings.

Findings

The paper finds that RI/SRI/ESG best in class portfolios are challenged for various reasons; engagement activities are challenged due to the structural inadequacies in the industry; SRI fund managers themselves do not use SR; CSR does not address strategic core business matters; conflicts of interest on the way plague the investment supply chain; and private equity may enable progress in RI.

Research limitations/implications

More research is required on the theory of RI and current systemic constraints.

Practical implications

Specific regulatory measures to counteract systemic failures are identified here.

Originality/value

The scope of the critique and findings is original. Value is the real experience of a working practitioner who is sympathetic to RI/SRI/ESG.

Citation

Joly, C. (2010), "Why responsible investment falls short of its purpose and what to do about it", Corporate Governance, Vol. 10 No. 1, pp. 18-32. https://doi.org/10.1108/14720701011021085