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Are Socially Responsible Funds Viable?

Author

Listed:
  • Amil Dasgupta

    (LSE - London School of Economics and Political Science)

  • Dirk Jenter

    (LSE - London School of Economics and Political Science, CEPR - Center for Economic Policy Research)

  • Richmond Mathews

    (Department of Finance)

  • Paul Voss

    (HEC Paris - Ecole des Hautes Etudes Commerciales)

Abstract

We study the viability of socially responsible (SR) funds when investors are small, have social preferences, and can cheaply invest in other ways. In a static setting, SR "impact" funds, which engage with dirty firms at a cost, cannot exist due to free riding, regardless of the type of social preferences. SR exclusion funds with reduced ownership of dirty firms can exist, but only if investors' social preferences are "warm glow," i.e., tied to the extent of ownership. In a dynamic setting, we demonstrate a symbiosis between SR fund types-the existence of exclusion funds allows impact funds to profit by buying and then cleaning up dirty firms.

Suggested Citation

  • Amil Dasgupta & Dirk Jenter & Richmond Mathews & Paul Voss, 2026. "Are Socially Responsible Funds Viable?," Working Papers hal-05562865, HAL.
    • Handle: RePEc:hal:wpaper:hal-05562865
    DOI: 10.2139/ssrn.5761204
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