European Business Schools Librarian's Group

HEC Research Papers Series,
HEC Paris

No 1607: Are Socially Responsible Funds Viable?

Paul Voss, Richmond D. Mathews, Dirk Jenter and Amil Dasgupta
Additional contact information
Paul Voss: HEC Paris - Finance Department
Richmond D. Mathews: Department of Finance
Dirk Jenter: London School of Economics & Political Science (LSE) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Amil Dasgupta: London School of Economics (LSE); European Corporate Governance Institute (ECGI)

Abstract: We study the viability of socially responsible (SR) funds when investors are small, have social preferences, and can cheaply invest in other ways. In a static setting, SR "impact" funds, which engage with dirty firms at a cost, cannot exist due to free riding, regardless of the type of social preferences. SR exclusion funds with reduced ownership of dirty firms can exist, but only if investors' social preferences are "warm glow," i.e., tied to the extent of ownership. In a dynamic setting, we demonstrate a symbiosis between SR fund types-the existence of exclusion funds allows impact funds to profit by buying and then cleaning up dirty firms.

Keywords: Impact funds; dirty firms; warm glow

JEL-codes: D64; G11; G23

32 pages, First version: November 21, 2025. Revised: January 30, 2026.

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