Socially responsible investment (SRI) has become a major challenge for regulatory authorities, the financial industry, rating agencies and investors.

The literature on the financial impacts of SRI focuses on the dichotomy between conventional investment funds and funds denominated in SRI. Early studies by Hamilton et al. (1993), Goldreyer and Diltz (1999), and Diltz (1999), and Statman (2000) compare the risk-adjusted returns of SRI indices and funds in the United States for the 1990s and show that the impacts of ethical investing are not significantly different from zero. Luther and Matatko (1992, 1994) and Mallin et al. (1995) find the same results concerning British funds for the periods 1984-1990 and 1986-1994 respectively. In addition to finding similar results, these authors show that an ethical selection process could introduce a bias related to the size of the companies selected. From this conclusion, Goldreyer et al. (1999) move from the risk-return framework to the CAPM model of Sharpe (1964) and Lintner (1965), like Kreander et al. (2005) and Renneboog et al. (2008a; 2008b). They use the three-factor model developed by Fama and French (1992; 1993) to assess the performance of funds in Europe and the United States. Their results reach the same conclusions: financial performance tends to be lower when investing is ethical, but their results are barely significant. The introduction of Carhart's (1997) four-factor model by Bauer et al. (2005), who study the performance of American, British, and German SRI mutual funds, does not contradict the importance of differences in performance observed in previous studies. Statman and Glushkov (2009) and Hong and Kacperczyk (2009) chose to consider “sin stocks” in the investment portfolio. A positive and significant excess performance of these funds would support the idea, by symmetry, that ethics comes at a cost.

These apparently different results obtained in the empirical literature highlight a methodological problem concerning the dual approach of conventional versus ethical investing. Therefore, the most recent empirical literature focuses on the lack of a strict methodology for comparing performance. Indeed, the first studies on the impact of ethics (Hamilton et al., 1993; Bauer et al., 2005) are based on a direct comparison between conventional funds and SRI, but do not assess the relevance of a comparison between these mutual funds.

Since then, this methodology has been enriched following two major innovations. On the one hand, Statman (2000, 2006) and Schroder (2007) use financial indices rather than funds to compare the financial performance of ethical and conventional benchmarks. On the other hand, a procedure for prior matching between conventional and ethical funds (Mallin et al., 1995; Gregory et al., 1997; Kreander et al., 2005) and even concerning “sin stocks” (Hong and Kacperczyk, 2009; 2009; Humphrey and Tan, 2009; Humphrey and Tan, 2013; 2013; Borgers et al., 2015) mutual funds are introduced to improve the relevance of quantitative performance comparisons.

In the most recent research articles, the use of cross-scores based on ESG criteria among asset data helps avoid the statistical biases inherent in the duality of mutual funds. El Ghoul and Karoui (2017) establish an asset-weighted CSR score for mutual funds based on their exposures using enterprise-level data from MSCI ESG KLD STATS. This preliminary data processing allows them to compare the performance of American mutual funds on the same basis for the period 2003 — 2011. Borgers et al. (2015) use the same approach with American mutual funds (assets from 2004 to 2012) to measure the impact of social factors on financial performance.

However, the success of responsible finance is still in the dark. First, we will try to determine what an “ethical” financial product really is? This analysis may then lead to the establishment of a framework for independent ethical scoring. We will analyze whether beliefs concerning the cost of a moral requirement on the financial performance of an investment should in any case be reviewed. To do this, we will take a more theoretical approach to analyze the microeconomic foundations of ethics and in particular the utility function of the ethical investor extending the results of Bollen (2007).

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