Socially Responsible Finance: How to Optimize Impact

Augustin Landier and Stefano Lovo

The Review of Financial Studies, 2025, vol. 38, issue 4, 1211-1258

Abstract: Can a socially responsible fund (SRF) improve social welfare while maximizing assets under management? We consider a two-sector model integrating financial intermediation, emissions’ negative externalities, and investors’ social preferences with regard to value alignment and impact. In scenarios with a high proportion of value-aligned investors, the SRF invests in clean sectors and compels recipients companies to use low-emission suppliers from the polluting sector, which appeals to both investor types. Alternatively, the SRF adopts a dual-fund approach, with one fund targeting clean sectors for value-aligned investors and another focusing on reducing direct emissions in polluting sectors to attract impact investors.

Keywords: G11; G23; M14; O44; Q50 (search for similar items in EconPapers)
Date: 2025
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