Estimating the Ethical Achievement Levels of Mutual Funds by Synthetic Indicators

Abstract

This paper deals with socially responsible investment (SRI) also known as ethical investment. Environmental and social levels of achievement for mutual funds are measured in an objective way from multiple SRI criteria. For this purpose, some synthetic indicators are designed. These indicators do not depend on particular preferences, because SRI preferences of investors in mutual funds widely change from an investor to another. To obtain a first indicator, we use Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) with equal weighting. We justify equal weighting from Laplace principle of insufficient reason concerning preferences. A second TOPSIS indicator is obtained from domination analysis, which does not require Laplacian assumptions. A software application is constructed, whose framework and practical use are shown. From actual information provided by Morningstar and KLD Research & Analytics Inc., a real world case is developed and commented.