Socially responsible investment and financial performance: evidence from the Johannesburg securities exchange

Abstract

Socially responsible investment (SRI) is fast becoming one of the major considerations for investors across the world. Both corporate and individual investors use the SRI index of organizations to make investment decisions. Although this model of investing is popular in the Western world, evidence suggests that the process has been gaining prominence in the developing world. The Johannesburg Securities Exchange (JSE) launched its Socially Responsible Investment Index (SRI Index) in 2004 as a means of identifying an index of listed companies that integrate the principles of triple bottom line reporting in their business activities. Using panel data regression, this article analyzes the financial performance of companies listed on the JSE SRI Index between 2004 and 2010 in relation to their social responsibility measures. The results demonstrate that companies listed as constituents of the JSE SRI Index have better financial performance than those that are non-constituents. A high awareness of social responsibility as indicated by the JSE SRI Index makes for a more profitable portfolio and enhances the prospects of listed companies that are rated as having attained a certain level of social responsibility as indicated by the JSE SRI Index to yield better returns to their investors.