Making a difference or making a statement? Finance research and socially responsible investment

What does socially responsible investing (SRI) accomplish for investors and for society? Proponents of SRI claim that the practice yields competitive portfolio returns for investors, while at the same time achieving better outcomes for society at large. Skeptics view SRI as ineffective at best and ill-conceived marketing hype at worst. My objective in this paper is to apply mainstream finance research findings to the question of whether SRI may be expected to lead to superior social outcomes. I conclude that under the perfect markets assumptions underlying most finance theory, SRI will not affect social outcomes. However, given well documented imperfections in equity markets, the claim that SRI "makes a difference" to society is a reasonable one that is consistent with current theoretical and empirical research in finance.