Do social factors influence investment funds?

Investment funds that aim to attract socially responsible or institutional customers invest less in socially sensitive companies, despite the fact that these investments generate higher returns. This is shown in a paper by Arian Borgers, Jeroen Derwall, Kees Koedijk, and Jenke ter Horst. They analyzed the investments by US investment funds over the period 2004 – 2012, and answered the question: what is the economic significance of social behavior in investment decisions?

The researchers looked at how these US funds are influenced in their investment policy toward shares that are seen as controversial in terms of social responsibility. To that end, they tried to answer two questions in their research: Does exposure to controversial shares affect these investment funds' returns? What factors explain the variation in investment funds' exposure to investments in controversial shares?