No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
Equity SRI funds vacillate between ethics and money: An analysis of the funds’ stock holding decisions
Abstract
We provide a detailed holdings-based analysis of investment decisions made by U.S. equity SRI funds. Besides incorporating conventional fundamental factors, such as earnings growth, leverage, dividend yield, stock return and volatility, SRI funds adjust portfolio weights by considering companies’ relative ESG performance. This holds for all categories of passively and actively managed funds, while for active funds ESG scores have a higher economic impact for value rather than growth funds. The timing of inclusion of companies in active SRI funds or their exclusion is driven primarily by fundamentals rather than by ESG performance. We find that both active SRI and matched conventional funds integrate ESG information as well as financial criteria in their investment decisions, but SRI portfolios exhibit higher average sustainability scores. Finally, we posit that SRI screening criteria effectively guide investment decisions, positive screening resulting in higher active portfolio weights of best performers in a corresponding ESG pillar.
... The literature is replete with the risk and performance of ESG funds (Utz & Wimmer 2014) and comparisons with conventional funds (Kreander et al. 2005), but there is little on the asset allocations of funds (Joliet & Titova 2018). The impact of asset allocation and fund management features on ESG risk exposure has not been examined in a systematic fashion, with little research on how portfolio managers devise their portfolios (Erragragui & Lagoarde-Segot 2016). ...
... Overall, these results provide insightful information for E, S, and G dimensions. Funds should promote the E, S, and G agenda through their investment activities and not through greenwashing (Joliet & Titova 2018;Candelon et al. 2021). ...
... This is especially so as regulators demand that funds disclose far more data about their investments, especially sustainable investments (see, for example, the Sustainable Finance Disclosure Regulation at the European level). Joliet and Titova (2018) examine investment strategy focused on the geographical scope of funds and find that ESG performance is weakly related to asset allocation decisions for ESG funds with a US focus. They note that the lower ESG quality of US-oriented funds is due to lower disclosure levels and policies of US companies relative to European companies. ...
Frequent natural disasters caused by climate change and the COVID-19 pandemic have increased global awareness of sustainability issues with a consequent focus on sustainable finance. This study disaggregates the exposures of mutual funds to environmental, social, and governance risks using data from 18,648 investment funds. We find that investment in technology and financial firms and herding behavior support an environmental strategy but not necessarily governance or social responsibility. Further, funds with longer-tenured managers are less sustainability-focused, possibly entrenched from an era before ESG became a societal concern.
... The choice of the funds is based on self-labeled SFs, where their fund name includes terms such as ESG, SRI, sustainable, social, ethic, green, clean, carbon, SDG, climate, responsibility, sustainability or ethical (related to the approach used by Takahashi and Yamada, 2021). Through self-labeled SF names, the funds voluntarily demonstrate their commitment to address ESG considerations (Joliet and Titova, 2018). Within the investment universe, we focus on active (vs passive) equity (vs fixed income or alternative asset classes) as this specific group represents the biggest part of the fund investment world. ...
... We use a one vs one approach and the following matching criteria: same management fund company, geographical area of investment, investment size and style according to the nine-grid box from Morningstar, and finally, fund age and size. We do not use the most recent proposed matching approaches of propensity score matching (Alda, 2018;Ammann et al., 2019;Bilbao-Terol et al., 2017;Day et al., 2016;Ghoul and Karoui, 2020;Joliet and Titova, 2018) as our paper focus on differences in funds by the agents (fund management co) reacting to the disclosure requirements proposed by the SFDR. For the whole universe screened, we arrive at a sample of 71 matched pairs of funds (a total of 142 funds), of which 56 funds are categorized as Article 8 (39.4% of the total) and 12 funds are categorized as Article 9 (8.5% of the total). ...
... ESG performance Refinitiv score, which is the higher the score, the better (used by Gangi and Varrone, 2018;Nitsche and Schröder, 2018;Madhavan et al., 2021). Sustainability risk from Morningstar is based on Sustainalytics data, and for this score, the lower, the better, as it measures risk (used by Alda, 2020;Becker et al., 2021;Joliet and Titova, 2018;Kim and Yoon, 2020;Nitsche and Schröder, 2018). ...
Purpose
The aim of this paper is to evaluate the impact of the sustainable financial disclosure regulation (SFDR) on the environmental, social and governance (ESG) performance and risk scores of sustainable funds (SFs) from a multi-regional perspective.
Design/methodology/approach
This research involves conducting a comparative study between self-labeled SFs and conventional funds of the same mutual fund company matched using a five-step process. Using the SFDR publication as a natural study, this study uses panel data methodology on a portfolio ESG score database before SFDR implementation and three to six months post-SFDR Level 1 requirement to measure the impact.
Findings
The findings provide evidence of a clear reduction in ESG risk and an improvement in ESG performance across all samples and ESG dimensions following the SFDR regulation. In addition, the results reveal a positive spillover effect of the regulation on conventional funds following its implementation.
Research limitations/implications
The study can be helpful for fund managers, investors and regulators as it provides insights into the impact of mandatory ESG disclosure regulation on the global fund investment market. The study is limited by data availability due to the restrictive matching approach used, which starts with fund pairs from the same fund management company.
Practical implications
The study can be helpful for fund managers, investors and regulators as it provides insights into the impact of mandatory ESG disclosure regulation on the global fund investment market.
Originality/value
To the best of the authors’ knowledge, there is a lack of research papers that analyze the impact of the SFDR mandatory regulation as a driving force on the ESG scores of the fund market using the same fund management matched pair approach. This paper tests the importance of the investment area through a multi-regional approach to study potential “spillover” effects.
... Recent studies using ESG scores, including Białkowski and Starks (2016), Joliet and Titova (2018), Nitsche and Schröder (2018), and Alda (2020), have shown that the ESG scores of SF are higher than those of their conventional counterparts. Białkowski and Starks (2016) found that US domestic funds had significantly higher positive exposures to ESG categories from MSCI. ...
... Białkowski and Starks (2016) found that US domestic funds had significantly higher positive exposures to ESG categories from MSCI. Joliet and Titova (2018) focused on US equity funds in 2005-2009, while Nitsche and Schröder (2018) studied the top 10 fund holdings of European and Global funds. Alda (2020), on the other hand, tested UK SRI matched pension funds using the nearest-neighbor matching approach. ...
... In our sample, the Sustainable label was used in 72% of pairs, while ESG was used in 18%. We argue in line with Joliet and Titova (2018) that the funds included have, therefore, voluntarily proven their willingness to include ESG considerations. ...
... Research shows that the concept of socially responsible investment gradually focuses on the three dimensions of environment, society and governance (ESG), and research shows that fund social responsibility is generally conducive to investment performance (Zhang,2021) [6]and contributes to improving corporate financial performance (Li Jinglin, 2021) [7].From the perspective of stock returns, stocks with high ESG rating have higher long-term returns (Joliet, 2018) [8].In the current policy environment of A-share market, signal theory holds that high ESG score has been generally regarded as A favorable signaling behavior by investors, which can effectively improve shareholders' and investors' ability to recognize corporate goodwill. Therefore, setting higher ESG screening intensity can also achieve higher investment returns (Zhang Xuan, 2019) [9].From the perspective of risk, good ESG performance of enterprises can not only improve performance, but also reduce risks. ...
... Research shows that the concept of socially responsible investment gradually focuses on the three dimensions of environment, society and governance (ESG), and research shows that fund social responsibility is generally conducive to investment performance (Zhang,2021) [6]and contributes to improving corporate financial performance (Li Jinglin, 2021) [7].From the perspective of stock returns, stocks with high ESG rating have higher long-term returns (Joliet, 2018) [8].In the current policy environment of A-share market, signal theory holds that high ESG score has been generally regarded as A favorable signaling behavior by investors, which can effectively improve shareholders' and investors' ability to recognize corporate goodwill. Therefore, setting higher ESG screening intensity can also achieve higher investment returns (Zhang Xuan, 2019) [9].From the perspective of risk, good ESG performance of enterprises can not only improve performance, but also reduce risks. ...
With the widespread recognition of ESG investment concept, institutional investors in China's securities market are paying more and more attention to ESG performance of enterprises. However, different types of institutional investors pay different attention to ESG performance, and their shareholding preferences may be different. This paper takes A-share listed companies from 2018 to 2021 as samples to conduct an empirical study. The results show that: on the whole, institutional investors have an obvious ESG preference in China's A-share market, and corporate ESG performance is significantly positively correlated with institutional shareholding ratio. The research on different types of institutional investors shows that independent institutional investors have more obvious ESG preference for shareholding compared with non-independent institutional investors.
... The literature shows that private investors who want to invest in funds that achieve sustainable objectives must take into account aspects that, in some ways, may be contradictory, such as the investment objectives via profitability and the type of analysis of Risks 2023, 11, 149 2 of 12 sustainable achievement (Joliet and Titova 2018). In turn, there are studies that show positive results for investment in ESG criteria, as shown by (Friede et al. 2015), although it has also been analyzed that depending on the type of industry analyzed, the ESG criteria applied, in the case of European investors, a negative relationship between ESG and profitability was observed, showing how sustainable investment has not been profitable (Auer and Schuhmacher 2016). ...
... With respect to portfolio management, there is little or no support for positive ESG/performance ratios in portfolios with ESG criteria and profiles (Halbritter and Dorfleitner 2015;Friede et al. 2015). This conflicts head-on with the growth of assets managed under ESG criteria, which has led to the incorporation of ESG criteria as a central objective in many cases (Revelli 2017;Joliet and Titova 2018). However, asset allocation is critical because if it is focused on intensive investment selection with ESG criteria, it leads to a fixation on single returns rather than diversifiable returns, which leads to lower returns from choosing securities with lower systematic risk (D. ...
Traditionally, finance has paid attention to the risk-return trade-off. Recently, given the incorporation of the 2030 Agenda and climate change, a third pillar has been incorporated into the investment decision: sustainability. Socially responsible investment is an instrument that can incorporate all three pillars. This paper aims to assess sustainability by Spanish investors using a choice experiment by applying the Bayesian approach with Markov chain Monte Carlo sampling and obtain the willingness to pay (invest) for each attribute. The results show that profitability remains the most important factor, although risk is at the same level as sustainability.
... ESG factors are considered to improve a company's financial performance [9]. According to Joliet and Titova, [21] ESG scores are more relevant in active asset management. During non-crisis periods, ESG funds tend to underperform compared to conventional ones [23] but are considered to have more resilient performance in times of crisis [2], on the other hand [30] found no change in performance during the pandemic and [5] found SRI had underperformed in developing countries but had outperformed in developed countries. ...
Stock exchanges around the world are beginning to integrate Environmental Social and Governance (ESG) considerations in market infrastructure, this is in line with the increasing attention of various parties on sustainable investment. Scientific research on ESG has increased over the past two decades. However, scientific research based on a three-stage systematic literature review approach on ESG in stock investment is still limited. This study adds to the scientific literature by reviewing 63 journal papers. Articles obtained from Scopus have been screened to ensure the quality of articles. From bibliometric analysis using VosViewer; resulting in four clusters has provides future research directions on ESG in stock investment.
... Since SMFs blend several ethical ideas (Galema et al., 2008), and because environment-friendly investment vehicles are still in their infancy, it makes more sense to separate the various SRI components so that individual research may be undertaken. This cluster encompasses four variants of SMFs, each explaining the diversity in their screening criteria: ethical funds (Basso and Funari, 2003;Bauer et al., 2005Bauer et al., , 2006Bauer et al., , 2007Belghitar et al., 2014;Ferruz et al., 2012;Gregory et al., 1997;Gregory and Whittaker, 2007;Kreander et al., 2002Kreander et al., , 2005Luther et al., 1992;Luther and Matatko, 1994;Mallin et al., 1995;Renneboog et al., 2011), socially responsible investment funds (Barnett and Salomon, 2006;Becchetti et al., 2015;Bello, 2005;Capelle-Blancard and Monjon, 2014;Hamilton et al., 1993;Humphrey et al., 2016;In et al., 2014;Joliet and Titova, 2018;Osthoff, 2007, 2008;Lestari and Frömmel, 2024;Nofsinger and Varma, 2014;Renneboog et al., 2008a;Riedl and Smeets, 2017;Schröder, 2007;Soler-Domínguez et al., 2021; ...
Purpose
This study aims to comprehensively examine sustainable mutual funds (SMFs) research by conducting a systematic literature review and bibliometric analysis of articles spanning 33 years from 1991 to 2023. This review seeks to uncover the principal contributors and the structural framework of knowledge within the realm of business, finance and management research concerning SMFs.
Design/methodology/approach
Following the “Scientific Procedures and Rationales for Systematic Literature Reviews (SPAR-4-SLR)” methodology, the author selected 597 documents for the analysis and collected the bibliographic information from the Scopus database. The author uses RStudio and VOSviewer software to address five research questions.
Findings
The findings indicate a notable expansion in research concerning SMFs within high-quality journals over the last 33 years. The review illuminates the principal contributors in SMFs research by using performance analysis based on journal, article, author, country and institution criteria. By using science mapping techniques, the author identifies five prevailing themes and outlines future research prospects in the domain of SMFs.
Practical implications
This review paper can serve as a roadmap for future researchers, aiding them in discerning the trending research topics within this domain.
Originality/value
To the best of the author’s knowledge, this is the first study that comprehensively provides an overview of different variants, diverse strands and research hotspots of SMFs literature. The study offers insight into the evolution of SMFs, showcasing their progression from a segmented market to a prominently specialized domain in the contemporary landscape.
... Investors are faced with limited budget and market opportunities, and financial-driven investors' decisions are driven by the expectations of and preferences for financial returns (Antonides & van der Sar, 1990). For sustainable investors, the sustainability objective plays a role in addition to the financial objectives (Joliet & Titova, 2018). In economics, individual orderings of this type are typically referred to as preferences. ...
Achieving the low-carbon transition and the broader sustainable development goals requires a large amount of investment. Investors are decision-makers who play an important role in determining the direction and level of capital flows and are therefore key to mobilising the investment needed for the low-carbon transition and sustainable development. For instance, investors can predominately decide on whether their investment capital is used to achieve low-carbon and sustainable development goals or whether it is invested in coal-fired power plants or companies with sub-optimal Environmental, Social and Governance practices.
The three essays in this cumulative dissertation focus on investor behaviour towards sustainability in the energy market and the retail investment market. Together, they provide a timely examination of investor behaviour towards sustainable investments and contribute to the latest debates and challenges in sustainable finance.
The collected essays examine investment behaviour and decisions in a controlled environment with climate policy or information interventions. Chapter 2 contains the paper entitled Regulated Correlations - Climate Policy and Investment Risks, co-authored with Dr. Oliver Schenker. We examine the mechanisms of climate policy instruments that shape the regulated covariance structure between electricity generation assets and thus affect the investment decisions of risk-averse investors. Chapter 3 encloses the essay entitled Does an Ecolabel Suffice on its Own? Evidence from a Discrete Choice Experiment on Investor Preferences and the Effect of Informational Messages and Visual Framing, co-authored with Dr. Marco Nilgen. We examine how specific information content influences potential retail investors' preferences for funds with a standardised EU ecolabel. Chapter 4 contains my single-author essay entitled A Tale of Financial Advice with Sustainability Preferences and Fees: Do Retail Investors Take the Advice? This is a study on how financial advice incongruent with retail investors’ sustainability preferences affects their investment decisions.
... Previous research also suggested that ESG disclosure lowers the cost of capital (Eichholtz et al., 2019), financing risk (Atif and Ali, 2021), and stock price volatility (Bofinger et al., 2022). Firms that engage in ESG disclosures appear more transparent while minimising investment risks (Joliet and Titova, 2018), have fewer adverse media reports and lawsuits, and gain larger government grants (Jackson et al., 2020). Past studies document a positive relationship between ESG disclosure and firm performance (e.g. ...
... A majority of the literature focuses on the performance of SRI funds (e.g., Renneboog et al. 2008aRenneboog et al. , 2008bCortez et al. 2009;Revelli and Viviani 2015;Durán-Santomil et al. 2019;Fatemi et al. 2024;Hornuf and Yüksel 2024). Particularly, Geczy et al. (2021) investigate investor preferences for SRI funds and Ceccarelli et al. (2024) reveal that mutual funds classified as "low carbon" enjoy a substantial increase in their monthly flows while Renneboog et al. (2011), Joliet and Titova (2018) and Edmans et al. (2022) study how SRI funds divest or invest in firms and construct their portfolios. The other group of studies examines SRI funds' involvement in firm policies. ...
We examine how socially responsible investment (SRI) mutual funds emphasizing employee relations are associated with the performance of their portfolio firms, measured by return on assets (ROA). We highlight the important role of mutual-fund shareholders emphasizing employee relations by showing that firms’ ROA improves when their shares are owned by such shareholders. We find the shareholder participation of employee-focused SRI funds a potential channel leading to firm performance improvement. Our finding holds for stock return performance and is stronger in human-capital intense industries. Instrumental variable approaches using state-level constituency statutes, mutual fund inflows, or Morningstar ratings suggest a causal relation.
... These studies can be broadly categorized into three groups. The first set of studies claims that SRI outperforms conventional investments while another demonstrates that SRI is financially inefficient and comes with costs to investors (Alda, 2020;El Ghoul & Karoui, 2017;Gangi & Varrone, 2018;Joliet & Titova, 2018;Shaik & Rehman, 2023). The third group of studies reports no significant differences in SRI's performance when compared to conventional investments (Humphrey & Lee, 2011;Reddy et al., 2017). ...
Given the growing significance of socially responsible investing (SRI), the study aims to empirically examine the financial performance of socially responsible indices of India, China, the United States (US), and the United Kingdom (UK) vis-à-vis their respective market benchmark indices. The study uses various risk-adjusted performance measures such as Sharpe ratio, Jensen alpha, Treynor ratio, Information ratio, Modified Sharpe ratio, Sortino ratio, and Omega ratio to analyze the performance of SRI indices. The period of analysis extends from January 2018 to December 2021. The study performs various sub-period analyses including a crisis period analysis to assess the impact of the COVID-19 (coronavirus disease) crisis on the performance of select indices. Statistical tests such as the paired t-test and Levene’s F test are applied to examine the homogeneity of means and variances of sample indices. Robustness checks involve calculating performance metrics across varying sample sizes using a growing window procedure. The results highlight the outperformance of SRI indices over market benchmarks in India, the US, and the UK, suggesting that investors do not have to forgo financial performance to address their environmental, social, and governance (ESG) concerns. There is no statistically significant outcome observed for SRI performance in China. Empirical evidence from the crisis period analysis indicates that SRI can offer investors a hedge against market volatility. Overall, the findings suggest that there is no homogenous or universal outcome of SRI but rather varies depending on geographic region, study period, current market conditions, and extent of SRI adoption.
... Thirdly, funds boasting robust ESG ratings strategically curate their portfolios to predominantly encompass assets that rigorously adhere to ESG standards (Joliet and Titova 2018). This approach facilitates the exploitation of niche market segments, often overlooked by conventional investment funds. ...
This study investigates the ESG performance–systemic risk (SR) nexus among Indian companies. Using the beta coefficient from the Capital Asset Pricing Model (CAPM) and statistical analysis, it explores how ESG performance affects SR. The findings reveal that firms with higher ESG scores have lower SR sensitivity. Notably, there is a significant difference in risk sensitivity between high- and low-ESG-rated companies, with ESG effects being less pronounced in high-cap firms compared to low-cap firms. Conversely, large firms, older firms, and those with lower borrowing costs show a diminished effect of ESG ratings on their SR sensitivity. These results underscore the importance of firm-specific characteristics in determining the efficacy of ESG strategies in risk mitigation. This study reveals that ESG performance reduces SR, with market valuation affecting this relationship.
... During the COVID-19 pandemic, portfolios with higher ESG scores showed greater resilience [19]. Socially Responsible Investment (SRI) foundations adjust their portfolio weights based on a company's relative ESG rating [20]. Companies with higher ESG ratings have lower debt financing costs and are more influential in stakeholder-oriented unsystematic equity setups [21].ESG ratings have a positive impact on listed companies' value and can significantly improve a firm's Tobin's Q [22]. ...
... With effective external governance mechanisms, the pressure of external monitors helps to motivate firms to standardize their behavior. Furthermore, organizations that share ESG information are more transparent, decrease investment risks, and meet the risk aversion preferences of investors [5] . Studies have shown that institutional investors will pay attention to the ESG performance of firms and form certain shareholding preferences when looking for investment opportunities [6] , which also suggests that ESG performance may enhance firms' financial performance. ...
... As ESG disclosure requirements become more stringent, investors and analysts in the capital markets, especially institutional investors, are increasingly focusing on ESG risks in their investment decisions (Joliet and Titova, 2018). Simultaneously, analysts' focus is gaining traction, drawing the attention of external observers from investors and the media to listed companies, which increases information disclosure (Zumente and Bistrova, 2021). ...
... For example, enterprises can disclose ESG performance information to reduce the degree of information asymmetry between managers and external investors and effectively mitigate the risk of a stock market crash (da Silva, 2022;Ribeiro, 2023). Stocks with superior ESG performance can also exhibit higher future returns (Joliet & Titova, 2018). Consequently, investors set higher ESG performance-screening criteria when selecting stocks for higher investment returns (Alda, 2020). ...
With the rise of environmental, social, and governance (ESG) investment concepts, foreign institutional investors have become increasingly concerned about corporate ESG performance. Based on data of China's A‐share listed companies from 2011 to 2021, we empirically find that corporate ESG performance enhances foreign institutional investors to hold shares. Economic policy uncertainty significantly reduces the impact of corporate ESG performance on foreign institutional investors' shareholdings. The mechanism analyses show that information asymmetry and corporate reputation are the two transmission channels for corporate ESG performance that influence foreign institutional investors to hold shares. Further analysis shows that companies with good ESG performance are prone to become heavy investments and long‐term shareholdings for foreign institutional investors. The heterogeneity analyses show that the effect of ESG performance on foreign institutional investors' shareholdings is more significant among firms that are not state‐owned, with high business risk and in heavily polluting industries.
... find that Taiwanese investors in the investment decision phase are mainly interested in timely information that directly link sustainability information with financial value creation. Joliet and Titova (2018) find that ESG performance information plays a role in the investment decision, both at the start (pre-investment) and exit (liquidation) of an investment, but of smaller importance than financial considerations. show that impact investors may be prone to behavioural biases in decision-making, limiting the ability to improve the impact of investments. ...
Impact investing holds the promise to make the world a better place. However, when investors measure their impact only to prove it—without improving—it cannot be expected they will live up to this promise. This systematic literature reviews a sample of 141 academic articles on impact measurement of investments. The results show that measuring impact to prove and to improve is a distinct practice. Measuring to prove impact mainly relates to show accountability to stakeholders and relates to legitimacy, stakeholder and agency theory. Measuring to improve relates to investors understanding impact, acting on envisioned impact in decision‐making, and relates to decision‐making, performance measurement and organisational theory. Investors can improve impacts by integrating impact information throughout an integrated investment process. Although several authors mention improving impact, they provide limited guidance on this. Future research is needed on operationalising impact throughout the investment process, as a practice to improve investments' impact.
... The recent growing literature on sustainable investments is mainly related to sustainable economic development and finance, green transition, and environmental responsibility research, given the urgent concerns about climate change and environmental degradation (Benedetti et al., 2021;Kumar et al., 2022;Boroumand et al., 2022). Existing studies mostly investigate the portfolio performance and valuations of investment strategies based on high ESG standards or sustainability indices in stock and bond markets (El Ghoul & Karoui, 2017;Aouadi & Marsat, 2018;Joliet & Titova, 2018;Oikonomou et al., 2018;Rossi et al., 2019). They compare such 'green' investments with the more conventional 'brown' ones and explore, among others, ESG effects on corporate/accounting numbers, firm valuations, or fund exposures. ...
The increasing interest in climate change risks, environmental degradation, corporate social responsibility, and environmental, social, governance principles has motivated the recent soaring focus of policymakers, market practitioners, and academics on sustainable investments. In this vein, we investigate the cross-country interconnectedness among sustainability equity indices. Using a bivariate Dynamic Conditional Correlations-Mixed Data Sampling (DCC-MIDAS) specification, we study the short- and long-run time-varying dependence dynamics between European and five international (Australia, Brazil, Japan, US, and Canada) sustainability benchmarks. Our cross-country dynamic correlation analysis identifies the interdependence types and hedging characteristics in the short- and long-run across the business cycle. The significant macro- and crisis-sensitivity of the sustainability correlation pattern unveils strong countercyclical cross-country sustainability interlinkages for most index pairs and crisis periods. We further reveal the high- and low-frequency contagion transmitters or interdependence drivers in the macro environment during the 2008 global financial turmoil, the European sovereign debt crisis, and the recent pandemic-induced crash. Finally, we demonstrate that climate change risks and policy considerations are potent catalysts for both countercyclical and procyclical cross-border sustainability spillovers.
... Investors are faced with limited budget and market opportunities, and financial-driven investors' decisions are driven by the expectations of and preferences for financial returns (Antonides & van der Sar, 1990). For sustainable investors, the sustainability objective plays a role in addition to the financial objectives (Joliet & Titova, 2018). In economics, individual orderings of this type are typically referred to as preferences. ...
Ecolabels for financial products can help in bridging information and trust gaps among retail investors. However, the exact mechanisms of how retail investors adjust their investment fund preferences in response to such certifications are still poorly understood. We employ an online experiment on the discrete choice between different equity funds to elicit preferences for ecolabel-certified funds among potential retail investors (N = 1,508) and combine this with between-subject experimental treatments. Based on actual EU Ecolabel design considerations, we vary between specific informational content as well as the amount of information attached to the label across treatment groups. We introduce additional variation by adjusting the graphical manner of how auxiliary quantitative informational messages are presented to the respondents. Our findings suggest that providing respondents with pro-environmental motivational and trust-generating messages attached to the EU Ecolabel has a significant and positive effect on preferences for the fund with said label. Additional suggestive evidence on equivalently framed visual information regarding a fund’s total investment shares financing environmentally friendly economic activities highlights the importance of considering framing biases based on visual cues in addition to informational message content in addressing barriers in sustainable retail investment behavior.
... Second, stakeholder demand for their environmental and social impacts is increasing (Goy and Schwarzer, 2013). Third, conventional funds seek to restore trust in their damaged legitimacy and mitigate the impact of crises (Gangi and Trotta, 2015;Joliet and Titova, 2018). Moreover, ESG integration is a way to generate profits (Revelli, 2017). ...
Pension funds are major asset owners in financial markets and global investors with long-term investment horizons and the need for stable and predictable cash flows. On the other hand, these institutional investors are crucial for maintaining social security, so their performance and investment structure should take into account their responsibility for the environment and society in general. Therefore, they have an extraordinary potential and special responsibility to take measures against sustainability risks and to green the economy, but also to improve social and managerial aspects when adjusting their investment portfolios. Pension funds among institutional investors are expected to make an important contribution to the transition to a sustainable economy. The objective of this paper is to highlight the importance of integrating environmental, social and governance (ESG) aspects into the structure of pension funds' investment portfolios, taking into account related regulatory measures and anticipating transition risks. Investment strategies refer to exclusion procedures for ineligible investments, but also to sophisticated screening techniques and verification of compliance with specific sustainability criteria to contribute to the transition to a greener and more sustainable economy.
... For instance [16], report underperformance of ESG portfolios. On the contrary, [17], and [18] document the higher performance of SRI funds. Moreover [19], documents the mitigating effect of Corporate Social Responsibility (CSR) on crash risk in diverse geographies and identifies optimal levels of CSR to minimize idiosyncratic risk for each region. ...
This paper analyzes the risk-return characteristics of socially responsible investing by employing a time-varying capital gain and Sharpe ratio analysis for various investment horizons. We employ the MSCI ESG (environmental, social and governance) leaders indices in ten markets encompassing Australia, Canada, Europe, Japan, UK, USA, China, India, Russia, and South Africa. Our sample ranges from 2007–2020. We document that ESG investments have very desirable return and hedging attributes for investors in these markets, and especially so in the USA and emerging markets.
With the extensive dissemination and recognition of ESG investment concepts, ESG performance of enterprises has attracted widespread attention from all walks of life, and investors have gradually incorporated ESG performance into their investment decisions. The current study examines the impact of environmental, social and corporate governance (ESG) performance on institutional investors' shareholding. From 2012 to 2023, the data combined and analyzed by the data of the China A-SHARE market company. As a result of the study, companies with higher ESG scores tend to attract more attention and investment from institutional investors, which suggests that institutional investors are increasingly emphasizing corporate sustainability metrics in their asset allocation. Further research also found that internal control quality and information transparency play an important positive role in the relationship between the company's ESG performance and institutional investor shareholders.
This study assesses the portfolio concentration of socially responsible investment (SRI) pension funds, which may be subject to a potentially limited asset universe and have a higher concentration and lower performance than conventional funds. Nonetheless, in contrast to previous studies on SRI funds, this study considers the informationadvantage theory, positing that skilled managers should increase their concentration in assets in which they possess valuable information, departing from optimization models to achieve outperformance. This study frst compares actual fund concentration with concentration obtained from several traditional and modern portfolio optimization techniques (minimum variance, global minimum variance, optimal portfolio, naïve diversifcation, risk parity, and reward-to-risk timing) to understand whether SRI pension funds concentrate portfolios and deviate from optimization model solutions. Unlike previous studies, the actual fund assets are considered in the optimization models to take into account the real investment profles of SRI funds. The results indicate that SRI pension funds are less concentrated than conventional funds, and SRI and conventional pension funds largely diversify their portfolios, presenting lower concentration than portfolios formed with the optimization models. Furthermore, concentration strategies positively infuence performance in SRI and conventional funds, revealing
the use of information advantage. However, SRI and conventional fund managers
present poor skills (picking, timing, and trading) to exploit information advantages due to overconfdence issues, which afect performance with concentration strategies. This situation may be modifed if SRI funds follow modern optimization models and conventional funds follow traditional optimization models, improving managers’ performance and skills
We provide an holdings‐based analysis of socially responsible investment (SRI hereafter) funds' greenness and its determinants in Europe over 8 years (2015–22). To this end, a segmentation of SRI funds by greenness degree based on k‐means clustering is developed. Our results reveal that SRI funds' greenness depends on specific investment styles and the salient experience of managers in SRI. We verify that greening an SRI fund implies a higher stock selectivity leading managers to underweight their portfolios with fossil fuel stocks and raise the weight of green stocks once SRI market regulations in Europe have been implemented. Also, we find that active investment styles make SRI funds greener. Moreover, we provide evidence of counteracting experience effects provided that the more (resp. less) the manager is experienced in SRI (resp. mutual fund industry), the greener the fund is. In addition to those experience effects, we detect a gender diversity effect provided that a greater gender diversity in fund management teams contributes to increase SRI funds' greenness. Overall, our findings support the argument that the experience and abilities of fund managers are important factors for investors to consider when they choose SRI funds notably because skilled professionals with more experience in SRI are more likely to adapt to regulatory shifts.
Purpose
This paper aims to conduct a systematic literature review of Socially Conscious Investment (SCI) articles published in premier journals. Its objective is to shed light on the publication trend, leading authors, journals, countries and themes in contemporary SCI research. The article also provides a conceptual model of SCI to enhance understanding of the knowledge structure and the future research direction.
Design/methodology/approach
A systematic review followed the PRISMA guidelines and encompasses 264 full-text articles indexed in A* and A category journals listed in ABDC is reviewed. The literature synthesis adopts the theories, contexts, characteristics and methodology (TCCM) framework.
Findings
The article has identified the research trends related to author impact, journal impact, article impact and the outcomes derived from the TCCM framework. Additionally, it highlights three key themes: Performance of SCI, Behavioural issues and SCI development literature.
Originality/value
The insight on various aspects of SCI was explored for a comprehensive understanding. The authors also developed a conceptual model for socially conscious investment.
As primeiras regulamentações ambientais em países desenvolvidos forçaram empresas a fazerem altos investimento medidas de proteção, porém quando esses custos começaram a ser repassados houve a confirmação de que havia o interesse público de pagar mais por um produto ou serviço com tal, assim os executivos começaram a testar estratégias de atração para esse setor, surgindo o termo pays-to-be-green. Com os investidores sendo atraídos por esses resultados econômicos-financeiros de empresas com responsabilidade social e financeira, surgiu então o termo Enrironmental, Social and Governance ESG, como um método para avaliação de empresas, a partir dos políticas e resultados dentro desses três pilares para a análise de ativos dentro das bolsas de valores. Como o ESG se demonstrou um meio para capitalização de recursos financeiros e Os aeroportos que são infraestruturas logísticas importantes, mas que possuem difícil capacidade de atingir retorno sobre o investimento e necessitarem de liquidez. Este estudo propõe investigar como as ações ESG, com os dados disponíveis para o cálculo de emissão direta de GEE para os aeroportos, poderá implicar no valor do patrimônio líquido das concessões. Foram utilizados como estudo de caso os aeroportos de Brasília (SBBR), Galeão (SBGL) e Campinas (SBKP). Por meio de um procedimento econométrico verificou-se por meio de uma regressão não-linear utilizando o método de Mínimos Quadrados Ordinários (MQO) quais são os coeficientes das variáveis econômicas, financeiras, de produção e ESG que podem estimar o valor do patrimônio líquido. Tais resultados também são comparados a análise de regressões feitas para ativos dos setores de energia, transportes e real estate. Os resultados obtidos sugerem que o coeficiente da variável de emissão direta de gases de efeito estufa é negativo para o atraçaõ de patrimônio líquido, o que em tese deveria acompanhar o resultado da movimentação de aeronaves que demonstrou sinal positivo. Este estudo provê evidências empíricas sobre a performance financeira de investimentos ambientais para o mercado brasileiro e aeroportos, sendo uma contribuição para a literatura.
We assess the interconnectedness pattern of sustainability leaders from United States market during stable, boom and crisis situations for the period 01-Oct-2005 to 31-May-2021 using Qian et al. (2020) methodology. The purpose is to assess the hedging properties of sustainable firms. We find that sampled firms exhibit high connectedness during tail events. Also, they offer hedge against the market conditions. Moreover, the small and growth-oriented firms contribute to the total connectedness for all market conditions. The sampled SRI network appears favorable for forming portfolio as the average connectedness is negative for all economic conditions.
Environmental, Social, and Governance (ESG) ratings were developed to account for the multidimensional nature of the sustainability of firms. Research on ESG ratings suggests that working towards sustainability means engaging in a utopian effort, as in the chimera myth. We developed a conceptual framework of corporate activities that guides a systematic literature review based on 79 papers. Our analysis confirms that ESG ratings remain a black box, explored mainly from a purely monetary perspective and with contradictions on value created for companies and collective well‐being. Therefore, we deduce that research is still “chasing a chimera,” being this incomplete knowledge due to divergences in (1) theories, (2) regulations, (3) geographic and (4) corporate culture, (5) constructs/metrics, and (6) corporate attitude towards disclosure. Consequently, we identify research gaps and avenues for future research to foster corporations' responsible behaviours and socially responsible investing.
Purpose
This study investigates the influence of social trust on the attainment of corporate environmental, social and governance (ESG) objectives.
Design/methodology/approach
This study conducts panel regression analysis on a distinctive dataset for 2009–2017 on Chinese firms.
Findings
The analysis reveals a significant positive association between social trust and firm-level ESG practices. Moreover, the impact of social trust on shaping ESG outcomes is further amplified by factors such as economic growth, corporate governance standards and institutional quality. This relationship remains statistically positive when the authors employ alternative measures and methodologies, such as the instrumental variables, propensity score matching and difference-in-differences approaches. Notably, the results of heterogeneity tests indicate that the Trust–ESG nexus is more prominent for state-owned enterprises and firms with substantial market capitalization, superior profitability and higher leverage.
Originality/value
This study expands the comprehension of the determinants of ESG and underscores the influential role of social trust as an informal institution in enhancing a firm's ESG performance.
Atravesamos en la actualidad por uno de los periodos más complejos de la historia de la humanidad, en el que las decisiones que se tomen hoy podrían determinar nuestra propia existencia como especie y la perdurabilidad del medioambiente a largo plazo. El cambio climático es un hecho indiscutible, fenómeno fuertemente ligado a la actividad de los diferentes sectores productivos. En este contexto, las empresas son cada vez más conscientes de su responsabilidad con los grupos de interés, por lo que, más allá de realizar sus actividades con el único fin de maximizar sus propios beneficios, se orientan de manera creciente a la creación de valor social, enfoque que incluye el objetivo de hacer aportes positivos a las personas y la naturaleza, al tiempo que cumplen con las mejores prácticas en cuanto a gobernanza y liderazgo directivo. Una de las más importantes tendencias globales en la industria financiera es la incorporación de aspectos medioambientales, sociales y de gobierno corporativo (ESG) en el proceso de toma de decisiones de portafolio, enfoque característico de la denominada inversión socialmente responsable (socially responsible investment, SRI). Aunque se podría percibir que este es un enfoque filantrópico, la evidencia mayoritaria muestra que la SRI puede generar desempeños iguales o superiores, en términos de rentabilidad y riesgo, en comparación con los métodos tradicionales, al tiempo que contribuye al logro de objetivos de sostenibilidad. Así, es necesario que los diferentes participantes del mercado de valores fortalezcan sus conocimientos sobre riesgos y oportunidades provenientes de la SRI, campo que se encuentra en una etapa inicial de desarrollo en nuestro país. Con el fin de aportar a la difusión y el avance de la SRI en Colombia, el Autorregulador del Mercado de Valores —AMV— y la Universidad del Rosario presentan este documento de investigación, el cual, fundamentado en una extensa y actualizada revisión de literatura, se compone de seis secciones: en la primera, se exponen conceptos fundamentales, antecedentes y estado actual de la SRI; en la segunda, se analizan aspectos sobre la medición del desempeño y los riesgos ESG; en la tercera, los principales enfoque para la selección y administración de portafolios responsables son analizados; en la cuarta, se hace una descripción de las mejores prácticas internacionales, incluyendo los casos más representativos en cuanto a regulación y normas de calidad; en la quinta, se describen los más destacados avances realizados alrededor de la SRI en Colombia, junto con las oportunidades y retos para su implementación en el país, para terminar en la sexta sección con las conclusiones generales del documento.
Environmental, social and governance (ESG) considerations play an increasingly important role due to the growing focus on sustainability globally. Entities, such as banks and investors, utilize ESG ratings of companies issued by specialized rating agencies to evaluate ESG risks of companies. The process of assigning ESG ratings by human analysts is however laborious and time intensive. Developing methods to predict ESG ratings could alleviate such challenges, allow ESG ratings to be generated in a more timely manner, cover more companies, and be more accessible. Most works study the effects of ESG ratings on target variables such as stock prices or financial fundamentals of companies, but few works study how different types of company information can be utilized to predict ESG ratings. Previous works also largely focus on using only the financial information of individual companies to predict ESG ratings, leaving out the different types of inter-company relationship networks. Such inter-company relationship networks are typically dynamic, i.e., they evolve across time. In this paper, we focus on utilizing dynamic inter-company relationships for ESG ratings prediction, and examine the relative importance of different financial and dynamic network information in this prediction task. Our analysis shows that utilizing dynamic inter-company network information, based on common director, common investor and news event-based knowledge graph relationships, can significantly improve ESG rating prediction performance. Robustness checks over different time-periods and different number of time-steps in the future further validate these insights.
Enterprise's ESG investment is a sustainable development strategy, which can enhance the enterprise's sustainable development ability in the long run. However, whether executive compensation incentive can improve enterprise ESG performance has not been concluded yet. This paper aims to investigate the inherent relationship and operational mechanisms between executive compensation and corporate ESG performance. The study draws upon effective contract theory and incentive theory to examine A-share listed companies in Shanghai and Shenzhen, China, over the period of 2012-2021. The empirical findings reveal the following: Firstly, executive compensation incentives significantly enhance corporate ESG performance. Secondly, the mechanism analysis demonstrates that executive compensation incentives contribute to corporate ESG performance by promoting corporate social responsibility, enhancing internal control quality, and improving financial performance. Thirdly, further investigation reveals that the positive impact of executive compensation incentives on corporate ESG performance diminishes with increasing management shareholding, while it strengthens with a higher proportion of independent directors. Lastly, when compensation exceeds appropriate levels, overcompensation leads to a decline in corporate ESG performance.
Purpose
This study aims to provide a precise understanding of how corporate sustainability information is used in socially responsible investing (SRI). The study is motivated by the lack of a recognised body of knowledge on this issue. This study, therefore, collates and reviews relevant studies (67 studies) to provide guidance to investors interested in SRI and identify a research agenda for academics desiring to contribute to this area.
Design/methodology/approach
This study conducts a systemic literature review employing recognised key words and searching the Web of Science. HistCite is utilised to ensure important cited studies are not missed from the collection. The review was conducted from two perspectives: (1) sources of sustainability information and (2) how the information is used in SRI.
Findings
The review identifies five major sources of sustainability information, including corporate reports, ESG ratings, industry affiliation, news and private communication with firms. These sources of information play different roles in the cross section of SRI strategies (i.e. negative and positive screening, active ownership and integration). This study provides guidance on how to use this information in SRI and provides recommendations for future research on how analysts interact with the information, how different informational characteristics impact implementation, ways to improve data quality, improvements to analysis methods and where data use needs to be extended into new strategies.
Originality/value
This review contributes to the SRI literature by inventorying studies of an important, yet omitted aspect, namely, sustainability information. This work also enriches the literature on corporate sustainability information by investigating how this information can be used for a specific purpose, namely, SRI. Given the increasing interest in SRI, this review will provide much-needed guidance for a range of practitioners, including investors and regulators.
Socially responsible investors apply both financial and social criteria when evaluating investments in order to ensure that the securities selected are consistent with their personal value system and beliefs. This paper examines the potential impact these additional restrictions have on investment performance by comparing the performance characteristics of a carefully constructed, well diversified portfolio of socially screened stocks with two unrestricted benchmark portfolios. In contrast to prior research, the performance of the socially responsible portfolio examined in this paper is not subject to the confounding effects of trans- action costs, management fees, or differences in investment policy that are associated with actively managed mutual funds. Therefore, it is possible to more clearly isolate the potential performance implications associated with subjecting the investment opportunity set to social screening. Contrary to expectations, our findings indicate that application of social-responsibility screens does not necessarily have an adverse impact on investment performance.