Socially responsible investments

Within the last two decades, the market of socially responsible investing (SRI) has seen unprecedented growth and has become more and more important, not only because of the current financial crisis. This chapter gives a survey of the asset class SRI in general, i.e., market development and investment possibilities. Moreover, the question “How sustainable is sustainability?” is addressed by analyzing SAM Group sustainability rankings of the years 2001–2007. Furthermore, the ability of SRI to contribute to diversification within a portfolio is scrutinized. The analysis is based on simulated returns generated by an autoregressive Markov-Switching model and accounts for different levels of investors’ risk aversion. Optimal portfolios consisting of stocks, bonds, and the respective SRI index show that risk–averse investors mix SRI to an established portfolio consisting of bonds and stocks to reduce the risk and increase the performance. Additionally, the asset class SRI is found to be a substitute for the asset class stocks.