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The Sustainability Footprint of Institutional Investors

Author

Listed:
  • Rajna Gibson

    (University of Geneva and Swiss Finance Institute)

  • Philipp Krueger

    (University of Geneva and Swiss Finance Institute)

Abstract

Institutional investors are the single most important class of shareholders in stock markets. Yet, knowledge about their motivations for embedding environmental and social — or more generally — sustainability considerations in their portfolio allocations is at best emerging. In this paper, we propose a novel approach to measure the environmental, social, and aggregate sustainability footprint at the institutional investor portfolio-level. We provide evidence that institutional investors with longer investment horizons — as measured by investors’ legal type or portfolio turnover — exhibit significantly better sustainability footprints. We also document that institutional investors with better sustainability footprints generate higher risk-adjusted performance, primarily through a reduction of portfolio risk. Overall, our results are consistent with the view that institutional investors choose sustainability oriented portfolio allocations with the objective of long-term value maximization.

Suggested Citation

  • Rajna Gibson & Philipp Krueger, 2017. "The Sustainability Footprint of Institutional Investors," Swiss Finance Institute Research Paper Series 17-05, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp1705
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    Cited by:

    1. Stefano Ramelli & Alexander F. Wagner & Richard J. Zeckhauser & Alexandre Ziegler, 2018. "Investor Rewards to Climate Responsibility: Evidence from the 2016 Climate Policy Shock," NBER Working Papers 25310, National Bureau of Economic Research, Inc.
    2. Chen, Tao & Dong, Hui & Lin, Chen, 2020. "Institutional shareholders and corporate social responsibility," Journal of Financial Economics, Elsevier, vol. 135(2), pages 483-504.
    3. Ramelli, Stefano & Wagner, Alexander F. & Zeckhauser, Richard J. & Ziegler, Alexandre, 2018. "Stock Price Rewards to Climate Saints and Sinners: Evidence from the Trump Election," Working Paper Series rwp18-037, Harvard University, John F. Kennedy School of Government.
    4. Jean-Stéphane Mésonnier, 2019. "Banks' climate commitments and credit to brown industries: new evidence for France," Working papers 743, Banque de France.
    5. Barkó, Tamás & Cremers, M. & Renneboog, Luc, 2017. "Shareholder Engagement on Environmental, Social, and Governance Performance," Other publications TiSEM bb1f0349-1f6f-49a4-9d62-1, Tilburg University, School of Economics and Management.
    6. Hans B. Christensen & Luzi Hail & Christian Leuz, 2019. "Adoption of CSR and Sustainability Reporting Standards: Economic Analysis and Review," NBER Working Papers 26169, National Bureau of Economic Research, Inc.
    7. Ceccarelli, Marco & Ramelli, Stefano & Wagner, Alexander F, 2019. "When investors call for climate responsibility, how do mutual funds respond?," CEPR Discussion Papers 13599, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Investment horizon; Institutional investors; sustainability footprint; portfolio turnover; risk-adjusted performance; CSR; ESG impact; SRI; sustainable investing; impact investing; environmental footprint; social footprint;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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