When the going gets tough: alliance formation as a strategic response to SRI negative screens

Abstract

How should firms respond strategically when their whole industry is negatively screened by Socially Responsible Investment (SRI) funds due to the nature of its products (e.g., tobacco, alcohol, weapons) or its processes (e.g., biotechnology, nuclear power, mining, forestry)? We argue that an industry's exclusion from SRI funds due to negative screening should provide an incentive for firms to strategically manage the social responsibility aspects of their industry. Moreover, due to problems associated with free riding, we believe this incentive will likely result in the formation of multiple firm, intra-industry collaborative alliances engaged in social action and legitimation on behalf of the industry, rather than single firm efforts. We explore this argument by searching for evidence of such alliances within a sample of SRI negatively screened industries.