Balancing Ethics and Returns: A Comprehensive Review of Socially Responsible Investment Performance

Abstract

This systematic literature review comprehensively examines the performance of Socially Responsible Investments (SRI) by synthesizing existing research on financial returns, risk factors, and stakeholder impacts. The study explores the relationship between SRI practices and investment returns, assessing the influence of Environmental, Social, and Governance (ESG) criteria. While many studies suggest SRI can deliver comparable returns to conventional investments, inconsistencies remain, with SRI sometimes offering downside protection during market downturns but potentially underperforming in stable markets. Strategic approaches, such as focusing on higher ESG scores, can enhance financial performance. However, the lack of standardized definitions and metrics for SRI complicates performance assessments. The review also highlights the distinctive behaviors of SRI investors, who are often driven by ethical considerations and less sensitive to negative performance. Future research should focus on developing standardized ESG metrics and conducting longitudinal and sector-specific analyses. Overall, this review provides valuable insights for investors, academics, and policymakers in the context of sustainable financial strategies.