Analysis of sources of risk in socially responsible investment: The Moroccan case

Abstract

This study examines the relationship between socially responsible investment (SRI) and financial risk in listed Moroccan companies. While SRI is often considered less risky than conventional investments (CI), the study aims to understand why this is the case. The analysis takes into account two aspects of risk: specific risk and systematic risk. Specific risks are assessed in terms of the complexity associated with managing SRI and how certain features can mitigate this risk and improve financial performance. Systematic risk is explored in relation to investment diversification while taking ethical considerations into account. The study aims to determine whether the application of social responsibility (SR) criteria to assets reduces diversification and increases risk. Using panel data modeling, the study confirms a positive impact of SR on corporate risk. Specifically, it finds that the "Top Performing CSR" trophy (indicating a high commitment to CSR) has a positive effect on "systematic risk" and that the "CGEM CSR label" (indicating a commitment to CSR) has a positive effect on "specific risk.” In conclusion, the study establishes a positive correlation between social responsibility and investment risk. Companies that adhere to ethical standards tend to present higher levels of risk. This is explained by the complexity of managing socially responsible investments to achieve an optimal level of risk and by the limited diversification resulting from the application of ethical criteria.