Investing in social funds leads to a reduction in charitable donations

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A new study from Tel Aviv University, the first of its kind, examined whether there is a connection between the rapid growth of investments in social investment funds and the decrease in donations to charitable organizations. Researchers studied the actual investing behavior of around 10,000 investment app customers and found that investors who switched to a newly introduced social fund cut their donations, mostly in charities supporting similar causes. to those of the social fund. However, the researchers also found that most of the investors in the social fund had not previously donated to charities, so looking at the big picture, social funds entice more people to fund social causes.

The study was conducted by Dr. Shai Levi and Prof. Shai Danziger of the Coller School of Management of Tel Aviv University, in collaboration with Dr. Jake An of the Australian company Raiz Investing and Prof. Donnel Briley of the University of Sydney. The study was published in the journal Management Sciences.

In recent years, investment firms have marketed social investments (environment, corporation and government or ESG) as a way to enable investors to achieve financial returns while having a social impact. For example, such funds avoid investments in certain sectors, such as oil, and rather invest in others, such as renewables. In 2018, global social investment exceeded $ 30 trillion, an increase of 34% over 2016. During the same period, in the United States, total donations to nonprofits, the traditional way to advance the goals social security, fell by 1.1% to around $ 300 billion. The causal link between the popularity of social investments and the decline in charitable donations has not been examined so far.

Dr. Levi explains that the study was conducted using the unique database of the Australian digital investment platform Raiz Investment, a phone app aimed primarily at millennials, young investors with relatively small investment portfolios.

According to Dr. Levi, in 2017 Raiz added the option to invest in an ESG social fund, which invests only in companies that meet certain standards of sustainability, social values ​​and governance. Because the app is linked to users’ bank accounts, it was possible to track investor charitable donations both before and after joining the fund. Researchers tracked the investments and donations of approximately 3,300 investors who invested in ESG, approximately 4,000 investors who invested in another non-social fund, and another 3,300 investors in a control group, who were matched by investor characteristics to those who had switched to the ESG fund. They found that, on average, investors who contributed to charities before investing in a social fund tended to donate less later, meaning some investors saw their ESG investment as a kind of donation.

Prof. Danziger emphasizes the complexity of the results. “On the one hand, investment firms could use social funds as a marketing ploy to attract investors. For example, suppose you are told that the ESG fund only invests in companies with a low carbon footprint, that doesn’t mean that you are investing in companies in the renewable energy field. It may mean that you are investing in tech giants like Apple, which are companies that are not necessarily causing harm. Our results show that after investing in a social fund, investors reduce their traditional contributions to environmental and social non-profit organizations. On the other hand, since 79% of the investors in the ESG fund have not paid any charitable contributions before investing, it is necessary to assess the overall effect. Ultimately, the question is whether the ESG contributions to the company outweigh the decrease in investor donations that result from the replacement. In our study, you estimate I love that overall, funds will only have a positive impact on society if their annual contribution to social causes exceeds 3.2% of the balance invested. In practice, this is difficult to measure and we do not know if the contribution of social funds exceeds this threshold, so it is not clear whether their impact on society is positive “.

In conclusion, the researchers say: ‘The trend that emerged from the study indicates that investors could replace charities with social funds. This could have a major impact on charities, which will lose a significant source of income and have difficulty in getting keep running. ”

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More information:
Jake An et al, The Impact of Social Investments on Charitable Donations, Management Sciences (2022). DOI: 10.1287 / mnsc.2022.4339

Provided by the Tel Aviv University

Quote: Social Fund Investment Leads to Reduction in Charitable Donations (2022, March 7) Recovered on March 7, 2022 from .html

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