Multi-criteria decision analysis: methods to define and evaluate socially responsible investments

Originally being a niche strategy followed by few investors, socially responsible investing (SRI) now represents a significant part of the assets under management. After summarising empirical evidence on the performance of SRI funds, we present four challenges that are facing the further development of SRI and point to multi‐criteria decision analysis (MCDA) as the methodological framework that could help overcome these challenges. A first group of challenges calls for the development of a social performance indicator, which can score and classify mutual funds with respect to social responsibility. Another challenge requires a transparent tool for retail investors interested in SRI to learn about their SRI preferences. Reviewing the three schools of available MCDA methods, we present a concrete approach for future research in building such a social performance indicator and a retail investor tool for SRI.