Socially Responsible Investment (SRI)

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Preconceptions – Theoretical and Practical Experience

Unavoidably, researchers are – to some extent – always influenced by personal values and practical experience, making a clarification of how these might impede this study’s outcomes necessary. Bryman and Bell (2015, p. 40) argues that the materialization of values can occur at any point in the research process, and attitudes, knowledge and experience frequently influence how and what the researcher perceive. Due to that, an intrusion of personal values and practical experience inevitably occurs and it is of our opinion essential to emphasize our previous immersion within the examined subject.
At the outset of this thesis our pre-understanding within the area of study were relatively limited, and emerged from researching previous theories, scientific research papers as well as various news outlets. Implying that some of these previous studies did not strongly influence our view of DFIs, funds and fund managers would be negligible. For instance, some studies (Junkus and Berry, 2015; Renneboog et al., 2008; Settel et al., 2009) were particularly essential for our basic understanding of DFIs and their implications on development. By acknowledging this, we saw it as imperative to weigh in other views and opinions regarding DFI investments to avoid the risk of bias increasing.
Additionally, even though we can argue that we have previous academic knowledge within organizational studies, finance, management and CSR, we must underscore the lack of integration into the context of this specific research area. Our familiarity within agency theory, stakeholder theory and value maximization however, is very high since it have been present throughout our studies in business administration. Combining this knowledge with previous studies within environmental finance, CSR and public administration constitutes the underlying experiences forming our perception of the situational circumstance in which the fund managers operate. For this reason, our approach to the research question could be fairly described as business-oriented.
The unfamiliarity with institutional investment and fund manager behavior can also have had implications on the results, due to lack of experience within the SRI research area. In favor of preventing one view from overshadowing the other several alternative, opposing views and their respective implications were discussed, before proceeding in a specific direction. Furthermore, our knowledge within the fund investment industry is partially limited to our personal interest of placing money in ethical funds as well as the media coverage regarding their performance. In addition, Marie has some professional experience dealing with funds as a bank clerk, providing some insights regarding ethical choices when placing money into funds. Consequently, our favorability of placing money into socially responsible funds could have incused on our perception of fund managers within these funds by eliciting sympathy for their work. Bryman and Bell (2015, p. 40) emphasize this by stating that qualitative researchers can during intensive interviewing develop a close affinity to whom they interview, which can conclusively result in difficulties disentangling subjects’ perspectives from their own personal stance. In order to reduce the likeliness of this occurring, the objectivity of the interview questions was tested and validated through a pilot interview as well as by assigned supervisor. Although, this cannot fully disperse the occurrence of bias, it should have relieved the paper from effusive subjectivity.
Lastly, one of the authors (Alexander) has previous professional experience regarding trade-offs required in a leadership position from his work as an area operations manager. When having to make decisions that may have implications on two or more parties, whereas some needs to be prioritized over others, provides useful insights concerning how managers operate. It is important to note that this personal point of reference can have been transferred to the interviewed fund managers. However, since our professional backgrounds somewhat differ from each other we were able to question our own assumptions respectively.

Research Philosophy and Perspectives

Researching something as intricate and abstract as behavioral tendencies of specific individuals may be perceived as fairly convoluted and abstract. Even if this could to some extent be argued as truthful, it could also serve as a depiction of the true nature of people within social contexts, reaching far beyond what is considered objective, statistical and numerical evidence. The contestation of how the world should and should not be perceived will never reach homogeneous conclusions, although it can be useful to manufacture a researcher’s suppositions and preconceptions of reality. Crossan (2003, p. 47-48) argues that the ongoing debate of qualitative/quantitative research is fogged by incoherent definitions and a focus on methods, rather than underlying philosophical assumptions. Moreover, Crossan means that a clarification of personal values and assumptions is very useful when planning research studies. Hence, the epistemological and ontological perspectives of researchers determine the legitimacy of their contribution to theory as well as what they consider as valid (Peter & Olson, 1983, p. 121-122). Saunders et al. (2012, p. 128) means that these assumptions underpin the choice of method and research strategy. Therefore, these main philosophical standpoints will be further discussed in order to accentuate our methodological choices.


Ontology refers to the philosophical nature of social reality and if this reality is perceived as objective and external to the individual, or subjective and cognitively constructed from individual bias (Long et al., 2000, p. 190). Ontology is often divided into objectivism and constructivism/subjectivism. Objectivism refers to the view that the external world can be accessed objectively (Brannick & Coghlan, 2007, p. 62). Johnson and Duberley (2000, 155-156) further means that the ontological view of the objectivist assumes that natural and social reality exist independently from human cognition. A researcher that is adhere to an objectivistic reality argues that reality is independent and external (Brannick & Coghlan, 2007, p. 62). Contrastly, the ontological standpoint of subjectivists assumes that human cognitive processes constitute reality, and that no single external reality exist nor is objective (Johnson & Duberley, 2000, 155-156). Hence, the researcher cannot be separated from the research process but is instead an integral part of it (Brannick & Coghlan, 2007, p. 63).
Inevitably, the undertaken research question required subjective judgment of the individual views expressed by the fund managers. The decisions they make and the interaction they have with DFIs calls for interpretation, making it difficult to conceive this process as objective. Instead of assuming that a social reality exists objectively, themes and concepts describing the effect DFI investments have on fund manager behavior aided the conceptualization, that to some extent explained their decisions. Trying to objectively judge the implications institutional investments have on their personal decision-making process seem intricate. It is difficult to argue that reality is something objective that exists without being affected by people of different backgrounds and opinions, hence leading us to express our subjectivistic standpoint.


The epistemological standpoint assumes that the social world is a structure based on connections or networks created within constituent relationships (Long et al., 2000 p. 191), broadly referring to how to acquire knowledge and how it is transmitted to others. Epistemology is commonly divided into positivism and interpretivism . The basic assumption within positivism is that an objective reality exists independently from human behavior, therefore is not created by the human mind (Crossan, 2003, p. 50: Weber, 2004, p. 5). According to Crossan (2003, p. 49), the positivist means that the relationships between hard facts can be considered scientific laws.
In contrast, interpretivists believes that there is no separation between the individuals whom observe reality and the reality itself (Weber, 2004, p. 5). Essential to the interpretivistic paradigm is the understanding of subjective meanings of individuals; acknowledging, avoiding to distort, reconstructing and using them as the basis in theorizing (Goldkuhl, 2012, p. 137-138). Wainwright and Forbes (2000, p. 265) means that interpretivism is an antidote to superficial and atomistic survey methods within quantitative research, and instead provides an in-depth understanding of social phenomena more commonly embraced within qualitative research.
Since replicability, objectivity and causality was not this study’s primary concern, our philosophical standpoint is not particularly positivistic. This thesis undertook a behavioral examination of specific individuals, working under specific circumstances and situations. It is of our opinion that the situation appearing when managers make new investments is very much intertwined with the fund managers and strongly affected by them, giving no reason to separate them. Hence, when studying the social reality in which our participants operate, our philosophical view of reality was more interpretivistic. Another reason for not taking a positivistic stance is that it has according to Brannick and Coghlan (2007, p. 62), been the dominant approach in previous management research. This presents an argument to further explore management behavior from an interpretivistic standpoint.

Research Approach

The research approach refers to whether the study incorporate an inductive, deductive or abductive approach for the conduction of data (Saunders et al., 2012, p. 144-145). Inductive reasoning applies to research where concepts and themes are derived from the gathered data through interpretations. (Thomas, 2006, p. 238). It involves a process of observing a phenomenon or examining a subject, from which theories will emerge (Hyde, 2000, p. 83). Deduction is usually denoted as the opposite of induction since it departs from already existing theoretical framework and seeks to generalize more specific conclusions (Ketovki & Mantere, 2010, p. 316). The deductive approach instead seeks to explain and identify causal relationships between different variables and concepts by developing testable hypotheses or propositions (Saunders, 2012, p. 145). In addition to the inductive and deductive approach, an abductive approach can be undertaken, which combine the two involving a back-and-forth process between theory and data (Suddaby, 2006, p. 639). The abductive approach is more related to the inductive process of generating new concepts and models and does not seek to confirm already existing theories (Dubois & Gadde, 2002, p. 559). Abduction is different from induction in the sense that it is more concerned with refining theories than generating new ones (Dubois & Gadde, 2002, p. 559). The inductive approach is by tradition associated with qualitative research where concepts of interest is relatively unclear and not widely explored, while the quantitative researchers tends to instead subscribe to the deductive approach for interpreting the collected data (Hyde, 2000, p. 84-85). However, a large amount of studies demonstrates the use of both inductive and deductive procedures for their research (Hyde, 2000, p. 88-89).
Since this research aimed to use existing theories for analyzing data, the study undertook a deductive approach, by identifying themes that was relevant for the research question. The inductive approach was not considered suitable since this study’s aim was not to develop new theories, but instead to examine whether e.g. SRI, agency, and stakeholder theories could be applied to situations fund manager’s find themselves in when DFIs are involved. However, that does not mean that inductive elements were completely absent. After identifying themes during the interviews that was not highly applicable to the preselected theoretical framework we found it necessary to add additional theories and/or concepts to enrich the findings.

Research Strategy

A research strategy is according to Bryman and Bell (2015, p. 37) business research general orientation in reference to how it is conducted. Since the aim was to understand behavioral tendencies of the examined individuals, a qualitative approach was deemed as the most suitable approach. When having a subjectivistic view of reality it is very common to conduct qualitative research, and according to Williams (2004, p. 209) the terms are even used interchangeably. Qualitative analysis is highly descriptive, depicting how, why and when someone said what to whom as well as allows the examination of a process over a period of time as situational details unfold (Gephart, 2004, p. 455). The qualitative researcher aims to establish an intimate relationship with their peers, and perceives reality as a social construct in which they recognize situational constraints and how social experiences provides meaning (Denzin & Lincoln, 1994, p. 8). While qualitative researchers seek to reveal theories and concepts by explaining research observations in specific cases, the quantitative researchers instead aim to uncover relationships through general propositions and variable testing (Gephart, 2004, p. 455). Denzin and Lincoln (1994, p. 8) further emphasize that quantitative studies does not focus on processes but instead examine causality between variables through analysis and measurement. Hence, if the intention of the research is to provide a highly generalizable picture of a fund manager’s behavior, a quantitative questionnaire-based survey would have been appropriate.
Robson (2002, p. 233-234) summarized the advantages with questionnaire-based surveys as follows; 1) takes a relatively straightforward approach when trying to examine values, attitudes, motives and beliefs; 2) have a high level of standardization in data; 3) can adapt the data collection enabling generalizable result to large populations. In contrast, Robson (2002, p. 233) meant that some disadvantages are; 1) that respondent characteristics can affect the data (e.g. personality, experience and memory); and 2) that the disclosure of actual behavior and attitudes can be inaccurately depicted (e.g. the bias of being socially desirable depicting them as positive). Assuming a qualitative research approach (including interviewing) can provide enriching insights of socially responsible investment decisions. Robson (2002, p. 272-273) means that the advantages of the interview techniques are their adaptiveness, flexibility and ability to provide an in-depth understanding of the reasons for certain actions taken. Even though it can be very time-consuming for involved parties, it allows the identification of underlying motives, interesting responses and nonverbal cues, which questionnaires cannot (Robson, 2002, p. 272-273). Furthermore, Robson (2002, p. 272-273) also emphasizes that it inevitably increases the risk of reliability issues as a result of bias concerns and a lack of standardization. He also means that it can be very time-consuming for both parties because of the need to interview and later transform the recordings to written form (transcribe).
Large amounts of previous SRI literature have conducted quantitative analyses of SRI, and many (Barnett & Solomon 2006; Bauer et al., 2006; Goldreyer et al., 1999; Mallin et al., 1995) regarding mutual and conventional fund performance differences. However, even though quantitative studies can contribute with more general results of investor behavior from a statistical and mathematical point of view, the need for a more profound, humanistic and literary interpretation of how institutional investments (such as DFIs) can alter fund managers’ behavior, still is needed. In order to understand attitudes regarding the acceptance of suboptimal performance in favor of development impact, we deemed it less important to probe the accuracy of a presumed reality in accordance with quantitative research. Instead, our aim was to provide well-substantiated conceptual insights of situational circumstances from a qualitative perspective. To the observant peer, trying to grasp behavioral aspects of specific individuals acting in different environments, in which decisions require personal and experienced judgment, can be very difficult. Hence, the argument to utilize qualitative techniques is further legitimized when trying to understand the effect DFI investments have on fund manager’s behavior.

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Overview of Method

In brief, this study seeks to provide an in-depth understanding of the relationship between DFIs and fund managers from an SRI perspective as well as explain how their involvement affect investment decisions. Constructionism mainly constitute the ontological view in this thesis, since reality was not perceived as objective and external but rather as a social construct by us. The epistemological standpoint is mainly interpretivism, aiming to explain the DFI-fund manager relationship without separating reality from them as actors and describe their experiences in a subjective, rather than objective way. Since the aim of the study was to test if already existing frameworks could be applied to the DFI-fund-fund manager relationship, it departed from a deductive approach (with some inductive elements). Lastly, with all the above in mind, the most suiting research strategy was decided to be the qualitative method, enabling us to gather insights and opinions of fund managers working in fund that DFIs have invested in and provide a rigor analysis. Table 1 below summarizes the research design.

Literature Search and Critical Review

In order to ensure high quality in accordance to scientific research standards, this thesis and a large part of its content has been based on carefully selected and peer -reviewed scientific articles. Due to its international nature, all utilized sources are written in English in order to facilitate the verification of sources and reducing translation distortions. The keywords used to identify relevant research is ranked in accordance to significance and use. Moreover, these keywords were combined for the reason of tapering the search results.
Development Finance institutions (DFI), Socially Responsible Investment (SRI), Agency Theory, Stakeholder Theory, Value Maximization, Principal-Agent Problem, optimal contracts, management behavior, SRI investment screens, suboptimal financial performance, SRI portfolio implications Secondary sources are not utilized during the course of this work with the purpose to prevent information loss and contextual distortions. Important to note is however that one working paper were utilized to describe the European SRI market development written by Louche and Lydenberg (2006). While not yet been submitted to peer-review, is has been cited in many other scientific articles (Gond & Boxenbaum, 2013; Sandberg et al., 2009; Juravle & Lewis, 2008), somewhat ensuring a high level of credibility. The information obtained from the article only provided a background regarding the SRI market in Europe and had no significant implications on the scientific research review or method chapter as a whole. Another working paper was included as a source by (Stiglitz, 1991). Since it was only used to describe the very famous ‘Theory of the invisible hand’ that could easily be confirmed by other sources, we saw it as completely fine to use.
The primary online search tools used to obtain relevant material was; Umeå university library search tool, EBSCO, Emerald Insights, JSTOR, Google Scholar and Business Source Premier, containing several renowned scientific journals within e.g. social responsibility, finance and management (access provided by Umeå university). For the method chapter, several scientific articles (Braun & Clarke, 2006; Crossan, 2003; DiCicco-Bloom & Crabtree, 2006; Fenig et al., 1993) within the area of psychology and nursing has been used to describe our course of action in the method chapter. However, since this study falls within the area of business research these were only used as a means to describe our qualitative research process. These articles have also been used by other business researchers as a way to describe their method process, hence to some extent confirm their appropriateness.
Also, the reference lists of highly relevant research studies were utilized in order to find similar studies within the area. In addition to scientific articles, methodological and business literature were used, mainly in the methodology chapter. Since their primary aim is usually to provide a broad understanding of concepts and terminology, they mainly constitute a basis for further discussion and substantiated arguments.
In order to critically review the included scientific literature Harris (1997) CARS-framework for source evaluation was utilized. CARS is an abbreviation for credibility, accuracy, reasonableness and support and can be used to critically review and evaluate information (mainly on the Internet), that is available in large quantities with different purposes and variations (Harris, 1997, p. 11). Credibility emphasize the importance of the author’s credentials, evidence of quality control, evidence of peer review and aims to evaluate authenticity, reliability and believableness in decisions (Harris, 1997, p. 4-5). Our main arguments for a high level of credibility of used sources was to only include peer-review articles as source material in the thesis, which is an ensured form of quality control. Evaluating the credentials of each author was deemed unrealistic due to the extensive reference list and because of time limitations. The referenced books in the thesis were also deemed as highly credible, since they are referenced in a large number of scientific articles.
Harris (1997, p. 5-6) refers to accuracy as to how timely, exact, factual, detailed and purpose completely reflects the intentions of the literature. In order to ensure high accuracy, the presented scientific literature was relatively new, thus depicting the contemporary development within the research area. Naturally, older articles and books were included (Demski & Feltham, 1978; Guba, 1981; Holmström, 1979; Jensen & Meckling, 1976; Lincoln & Guba, 1985; Mulligan, 1986), mostly for the reason of explaining from where modern research originate. Moreover, there is always a risk of unintentionally leaving out important facts and alternatives (Harris, 1997, p. 6). Hence, we have been quite extensive in explaining and discussing rationales regarding methodological and theoretical choices in order to provide a more profound depiction of alternate directions and streams. As a reader of this paper you need to be aware that the primary data (information obtained from the participants during the interviews) has been exposed to some subjective interpretations increasing the risk of bias results.
Reasonableness is concerned with examining information related to objectivity, fairness, consistency and moderateness (Harris, 1997, p. 5-6). To ensure objectivity in examining the literature, the journals for publishing the articles were critically reviewed, ensuring that no financial motives of particular claims could have affected their results. In order to be fair in our judgment of authors, theories and methods, we tried to approach them without prejudice nor favoring one view over another. To avoid using scientific research presenting contradictory arguments, we made sure to extensively examine the consistency of their content. In regards to moderateness, one author specifically (Friedman, 1982) made controversial claims that seem to oppose the view of the established research community, regarding the ableness to act ethically in business situations. Since he is a renowned author we felt it necessary to include his opinions, although a clear discussion of more established views was weighed in. Apart from this exception there was no apparent claims out of the ordinary. Support refers to corroboration and source documentation (Harris 1997, p. 9-11). Several sources were used in order to corroborate the research articles results and conclusions. We found that none of the included articles made claims that were not substantiated with other appropriate sources, nor that any made claims that could not be retrieved from other studies.

Table of contents :

1. Introduction
1.1 Choice of Research Area
1.2 Background
1.3 Research Gap
1.4 Research Question
1.5 Purpose
2. Methodology
2.1 Preconceptions – Theoretical and Practical Experience
2.2 Research Philosophy and Perspectives
2.2.1 Ontology
2.2.2 Epistemology
2.3 Research Approach
2.4 Research Strategy
2.5 Overview of Method
2.6 Literature Search and Critical Review
3. Scientific Research Review
3.1 Socially Responsible Investment (SRI)
3.1.1 SR Investment Behavior
3.1.2 SRI Investment Screens, Selection and Implications
3.1.3 ESG Criteria
3.1.4 SRI Investment Performance
3.2 Agency Theory
3.2.1 Agency Cost, Conflicts and Incentives
3.2.2 Determining Optimal Contracts
3.3 Stakeholder Theory
3.3.1 Stakeholder Vs. Shareholder
3.3.2 Stakeholder Theory and Social Responsibility
3.4 Concluding Conceptual Framework
4. Method
4.1 Research Design
4.2 Data Collection
4.2.1 Semi-structured Interviews
4.2.2 Telephone Interviews
4.3 Selection of Participants
4.4 Design of Interview Guide
4.4.1 Designing the Questions
4.4.2 Ensuring Quality of the Interview Guide
4.5 Data Analysis
4.5.1 Thematic Analysis
4.6 Overview of Themes
5. Empirical Findings
5.1 Interviewee-Profiles
5.2 DFI Investments into Funds
5.2.1 The Role of DFIs
5.2.2 Trade-off Between Development Impact and Financial Performance
5.3 The Relationship between DFIs and Funds
5.3.1 DFI Requirements on Fund Managers
5.3.2 Reporting, Measures and Development Impact
5.3.3 DFI-Fund Interaction
5.4 Stakeholder Management
5.4.1 Different Shareholder/Stakeholder Preferences
5.4.2 Satisfying Multiple Objectives
5.5 Fund Manager Motives
5.5.1 Managers’ views on investment
5.5.2 Compensation structures and monetary incentives
5.6 Thematic Summary of Empirical Findings
6. Analysis and Discussion
6.1 Main Theme: DFI Investments into Funds
6.1.1 Sub-Theme: The Role of DFIs
6.1.2 Sub-Theme: Trade-off Between Development Impact and Financial Performance
6.2 Main Theme: The Relationship between DFIs and Funds
6.2.1 Sub-Theme: DFI Requirements on Fund Managers
6.2.2 Sub-Theme: Reporting, Measures and Development Impact
6.2.3 Sub-Theme: DFI-Fund Interaction
6.3 Main Theme: Stakeholder Management
6.3.1 Sub-Theme: Different Shareholder/Stakeholder Preferences
6.3.2 Sub-Theme: Satisfying Multiple Objectives
6.4 Main Theme: Fund Manager Motives
6.4.1 Sub-Theme: Managers’ views on investment
6.4.2 Sub-Theme: Compensation Structures and Monetary Incentives
7. Conclusions
7.1 Conclusions: DFIs Investments into Funds
7.2 Conclusions: The Relationship between DFIs and Funds
7.3 Conclusions: Stakeholder Management
7.4 Conclusions: Manager Motives
7.5 Summary of Conclusions
7.6 Theoretical Contribution
7.7 Practical Contribution
7.8 Ethical Considerations
7.9 Societal Consideration
7.10 Limitations and Recommendations for Future Research
8. Quality Criteria
8.1 Credibility
8.2 Transferability
8.3 Dependability
8.4 Confirmability


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