SOCIALLY RESPONSIBLE INVESTING AND PUBLIC PENSION FUND PERFORMANCE

This article examines the scope and implications of socially responsible investing by public pension funds. Standard analytical methods from financial econometrics are applied to analyze a new dataset of the equity holdings of thirteen of the largest state government pension plans. Contrary to previous research, pension funds are found to be deeply engaged in socially responsible investing. Moreover, the recent performance of socially responsible investments is largely indistinguishable from that of the state pension funds. Much of this new socially responsible investing activity is due to the broadening definition of the term "socially responsible." Policymakers and public pension fund managers should reconsider the term and, if necessary, redefine it more usefully.