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The Risk Awareness of Sovereign Wealth Funds in Relation to ESG Assets: Do Biggest World Institutional Investors Act Sustainably?

Author

Listed:
  • Marty-Jörn Klein

    (Mendel University in Brno, Czech Republic)

  • Gabriela Chmelíková

    (Mendel University in Brno, Czech Republic)

  • Jozef Palkovič

    (Slovak University of Agriculture in Nitra, Slovakia)

Abstract

This paper investigates the dependence of the investment behavior of Sovereign Wealth Funds (SWFs) on the Environmental, Social, and Governance (ESG) performance of their underlying investments in public equity holdings during the period of 2007 to 2022 collectively overseeing a substantial 71% of total public equity holding investments by SWFs globally. The unique data set with ESG control variables consist of mainly self-reported Corporate Social Responsibility (CSR) ESG information (ESG rating from Refinitiv/LSEG) and dynamic risk assessed ESG information purely based on external evaluation of the firms (Reputational Risk Indicator from RepRisk). The control variable which monitors the Corporate Social Irresponsibility (CSI) of target companies is novel to previous studies. Our findings suggest that SWFs still consider self-reported CSR information more than public CSI data in their investment decisions. Furthermore, a change in past ESG data of underlying public equity holdings - both CSR and CSI - does not seem to have a significant effect on the investment into underlying public equity holdings. Our conclusions could help to encourage greater ESG integration into SWF investment strategies and promote sustainable investing practices more broadly not limited to liquid assets.

Suggested Citation

  • Marty-Jörn Klein & Gabriela Chmelíková & Jozef Palkovič, 2024. "The Risk Awareness of Sovereign Wealth Funds in Relation to ESG Assets: Do Biggest World Institutional Investors Act Sustainably?," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 10(1), pages 5-24.
    • Handle: RePEc:men:journl:v:10:y:2024:i:1:p:5-24
    DOI: 10.11118/ejobsat.2024.003
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    References listed on IDEAS

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    1. Sudheer Chava, 2014. "Environmental Externalities and Cost of Capital," Management Science, INFORMS, vol. 60(9), pages 2223-2247, September.
    2. Sarah E. Stone & Edwin M. Truman, 2016. "Uneven Progress on Sovereign Wealth Fund Transparency and Accountability," Policy Briefs PB16-18, Peterson Institute for International Economics.
    3. René M. Stulz, 2007. "The Limits of Financial Globalization," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 8-15, January.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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