The impact of socially responsible investments on sinful firms: An empirical analysis of the UN Principles of Responsible Investment and sin stocks

Abstract

We study the effects of the United Nations Principles of Responsible Investment (UN-PRI) on sinful firms, in which we examine whether monthly returns and the Environmental, Social and Corporate Governance (ESG) performance have changed due to an increase in socially concerned investors. We find evidence suggesting that increased commitment to Socially Responsible Investments (SRI) has a negative effect on sinful firms, estimated to reduce monthly returns by 0.040 percent. This corresponds to a 4.4 percent decrease in the average monthly return. Our findings for ESG performance indicate that the ESG score is unaffected by the additional commitment to the UN-PRI. We conduct the analysis on geographical location and industrial affiliation to determine if these effects are uniform across all samples. Our results suggest that regions and industries have differentiating results.