History

At first, the following literature aims to present the previous studies done about sustainable investment in the world and more specifically in Europe. It intends to design a framework that will help the reader of this paper to understand the challenges and outcomes of the ensuing study. Thus, it starts from a global perspective to progressively concentrate on Europe. In a second time, it will focus on the existing literature about cash and cash equivalents and the banking industry’s performance

2.1. Sustainable investment globally

In the first subsection of this literature review, the history of sustainable investment will be introduced from its emergence to nowadays. Then, a more complex definition of sustainable investment will be provided by analyzing the strategies and best practices of sustainable finance.

In the second subsection, an overview of the legal frameworks and some key figures in Europe will be displayed to enable to analyze the market situation and provide a first examination of the implementation of socially responsible investments (SRI) assets in retail investors’ portfolio.

2.1.1. History

Socially responsible investing (SRI) refers to any investment strategy which aims to reach both financial performance and positive environmental and social change (Polivka, 2013). At first, in 1960, SRI was more oriented towards the social aspect, as awareness about the greenhouse effect and climate change only started to be raised in the eighties. The first concerns in the modern era about social issues were towards civil rights, gender equality, and labor conditions.

These first actions were not about investing in social companies that were implementing new innovative policies, but rather boycotting some specific corporations judged for their bad

‧

behaviors. As an example, SRI had an important role at the end of Apartheid in South Africa in 1994. There was a lot of pressure on fund managers during this period to make them avoid investing in firms operating in South Africa.

But SRI, as we know it nowadays, emerged in the middle of the eighties after huge disasters such as Bhopal and Exxon Valdez. The Bhopal and Exxon Valdez were a huge scandal at a time when scientists were raising concerns about the threat of an environmental crisis. On March 24^th, 1989, Exxon Valdez, an oil tanker struck the Gulf of Alaska spilling 37 metric tons of oil.

Even if this kind of incidents is not isolated, this accident is considered as one of the most dramatic ecological disasters caused by humans ( (Encyclopaedia Britannica, 2019). At the same time, other industries such as tobacco, fast food, clothing, and chemical industry began to be criticized for their negative social and environmental impact. Some companies faced some share value losses or less enthusiasm from investors as awareness grew. SRI gained also more and more popularity as the Internet developed at the end of the nineties, beginning of 2000.

Indeed, it allowed individuals to get to have access to information much more easily. In 1990, SRI mutual funds became sufficiently numerous and popular to create an index to measure their performance. The Domini Social Index constituted of 400 large capitalization U.S. corporations becoming the first SRI benchmark (Domini, 2019). These firms were chosen based on many environmental and social and environmental criteria. This index is still active nowadays and the company became more diversified with Domini Impact Equity Fund, Domini Impact International Equity Fund and Domini Impact Bond Fund’s holding (Domini, 2019).

During the financial crisis of 2008, many questions arose about the world’s economic interdependence and highlighted two major points: the role of central banks in the society’s

‧

In 2008, the crisis was so severe that the world needed to find some culprits. Lehman Brothers, Goldman, Moody’s were all designated as the main culprits of this huge crisis. But they were not the only ones to be pointed at, central banks were also criticized for not having been able to safeguard the economy (Goodhart, 2011; Eichengreen, 2011; Buiter, 2012). In the following years, their roles, duties and obligations towards obviously the economic, but also the environmental and social issues were discussed (United Nations Environment, 2017). As some of the top entities of financial authorities, central banks need to incorporate environmental risks into their frameworks to properly ensure financial stability. However, it may not be one of their core functions to use their elaborated instruments to support green finance investment. Indeed, economic stability and ecological transition can be conflicting objectives. The instruments they need to achieve environmental goals without jeopardizing their economic goals may not be currently effective enough. Hence, central banks’ role should be clearly defined and limited, in the environmental field, to an assessment of climatic risks and an encouragement to all the other financial institutions and regulators to act more sustainably and ethically.

Indeed, the lack of ethics and corporate social responsibility in the business policies were especially pointed at by the public opinion. Changing our business practices to a more sustainable model could not only have a positive impact on the Earth, so limiting the climate change risks, but it could also be a crucial factor to get over the financial crisis or to be at least less affected (Lins, 2017). If the role of investors is as much considered, it is because they are the ones who make the market. Indeed, companies that invest in corporate social responsibility perform better or not during a period of financial distress, if investors believe companies do, investors will invest in SRI, making the value of these firms rise. Thus, a positive difference between traditional companies and sustainable firms will definitely appear, making SRI seem

‧ 國

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

better investments in the actual economic situation (Polivka, 2013)