IDEAS home Printed from https://ideas.repec.org/p/kob/dpaper/dp2023-01.html
   My bibliography  Save this paper

Sustainable Investing Under Delegated Investment Management

Author

Listed:
  • Meg Adachi-Sato

    (Research Institute for Economics & Business Administration, Kobe University, JAPAN and Faculty of Business Administration and Accountancy, Khon Kaen University, THAILAND)

  • Hiroshi Osano

    (Faculty of Economics, Konan University, JAPAN)

Abstract

This paper considers how profit-motivated fund managers of sustainable and passive funds, govern the firms in the portfolios they construct using the capital collected from socially responsible investors. The fund managers endogenously choose their level of engagement with these firms to increase their profit while reducing any negative externalities. Using the search model framework between fund managers and investors, we derive several theoretical and empirical implications with regard to the effects of passive fund growth, sustainable fund growth, and improvement in environmental, social, and governance (ESG) engagement cost upon ESG and monetary performances generated by portfolio firms.

Suggested Citation

  • Meg Adachi-Sato & Hiroshi Osano, 2023. "Sustainable Investing Under Delegated Investment Management," Discussion Paper Series DP2023-01, Research Institute for Economics & Business Administration, Kobe University, revised May 2023.
    • Handle: RePEc:kob:dpaper:dp2023-01
    as

    Download full text from publisher

    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2023-01.pdf
    File Function: Revised version, 2023
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert G. Eccles & Mirtha D. Kastrapeli & Stephanie J. Potter, 2017. "How to Integrate ESG into Investment Decision†Making: Results of a Global Survey of Institutional Investors," Journal of Applied Corporate Finance, Morgan Stanley, vol. 29(4), pages 125-133, December.
    2. Samuel M. Hartzmark & Abigail B. Sussman, 2019. "Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows," Journal of Finance, American Finance Association, vol. 74(6), pages 2789-2837, December.
    3. Arno Riedl & Paul Smeets, 2017. "Why Do Investors Hold Socially Responsible Mutual Funds?," Journal of Finance, American Finance Association, vol. 72(6), pages 2505-2550, December.
    4. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    5. JOSEPH A. McCAHERY & ZACHARIAS SAUTNER & LAURA T. STARKS, 2016. "Behind the Scenes: The Corporate Governance Preferences of Institutional Investors," Journal of Finance, American Finance Association, vol. 71(6), pages 2905-2932, December.
    6. Itay Goldstein & Alexandr Kopytov & Lin Shen & Haotian Xiang, 2022. "On ESG Investing: Heterogeneous Preferences, Information, and Asset Prices," NBER Working Papers 29839, National Bureau of Economic Research, Inc.
    7. Opp, Marcus & Oehmke, Martin, 2020. "A theory of socially responsible investment," CEPR Discussion Papers 14351, C.E.P.R. Discussion Papers.
    8. Avramov, Doron & Cheng, Si & Lioui, Abraham & Tarelli, Andrea, 2022. "Sustainable investing with ESG rating uncertainty," Journal of Financial Economics, Elsevier, vol. 145(2), pages 642-664.
    9. Meg Adachi-Sato, 2021. "Socially Responsible Investment: Ex-ante Contracting or Ex-post Bargaining?," Discussion Paper Series DP2021-20, Research Institute for Economics & Business Administration, Kobe University, revised Feb 2023.
    10. Fichtner, Jan & Heemskerk, Eelke M. & Garcia-Bernardo, Javier, 2017. "Hidden power of the Big Three? Passive index funds, re-concentration of corporate ownership, and new financial riskâ€," Business and Politics, Cambridge University Press, vol. 19(2), pages 298-326, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Azar, José & Duro, Miguel & Kadach, Igor & Ormazabal, Gaizka, 2021. "The Big Three and corporate carbon emissions around the world," Journal of Financial Economics, Elsevier, vol. 142(2), pages 674-696.
    2. Giglio, Stefano & Maggiori, Matteo & Stroebel, Johannes & Tan, Zhenhao & Utkus, Stephen & Xu, Xiao, 2023. "Four Facts About Esg Beliefs And Investor Portfolios," SocArXiv dcb93, Center for Open Science.
    3. Ringe Wolf-Georg, 2023. "Investor Empowerment for Sustainability," Review of Economics, De Gruyter, vol. 74(1), pages 21-52, April.
    4. Simona Malovana & Dominika Ehrenbergerova & Zuzana Gric, 2023. "What Do Economists Think About the Green Transition? Exploring the Impact of Environmental Awareness," Working Papers 2023/6, Czech National Bank.
    5. Inderst, Roman & Opp, Markus, 2022. "Socially optimal sustainability standards with non-consequentialist ("warm glow") investors," SAFE Working Paper Series 346, Leibniz Institute for Financial Research SAFE.
    6. Ferriani, Fabrizio, 2023. "Issuing bonds during the Covid-19 pandemic: Was there an ESG premium?," International Review of Financial Analysis, Elsevier, vol. 88(C).
    7. Dunbar, Kwamie & Treku, Daniel & Sarnie, Robert & Hoover, Jack, 2023. "What does ESG risk premia tell us about mutual fund sustainability levels: A difference-in-differences analysis," Finance Research Letters, Elsevier, vol. 57(C).
    8. Eleonora Broccardo & Oliver D. Hart & Luigi Zingales, 2020. "Exit vs. Voice," Working Papers 2020-114, Becker Friedman Institute for Research In Economics.
    9. Steven D. Baker & Burton Hollifield & Emilio Osambela, 2022. "Asset Prices and Portfolios with Externalities [Pricedetermination in the EU ETS market: theory and econometric analysis with market fundamentals]," Review of Finance, European Finance Association, vol. 26(6), pages 1433-1468.
    10. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2021. "Sustainable investing in equilibrium," Journal of Financial Economics, Elsevier, vol. 142(2), pages 550-571.
    11. Gillan, Stuart L. & Koch, Andrew & Starks, Laura T., 2021. "Firms and social responsibility: A review of ESG and CSR research in corporate finance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    12. Farizo, Joseph D., 2022. "(Black)Rock the vote: Index funds and opposition to management," Journal of Corporate Finance, Elsevier, vol. 76(C).
    13. Alessio M. Pacces, 2021. "Will the EU Taxonomy Regulation Foster Sustainable Corporate Governance?," Sustainability, MDPI, vol. 13(21), pages 1-21, November.
    14. Rzeznik, Aleksandra & Weiss-Hanley, Kathleen, 2021. "The Salience of ESG Ratings for Stock Pricing: Evidence From (Potentially) Confused Investors," CEPR Discussion Papers 16334, C.E.P.R. Discussion Papers.
    15. Zehua He & Kexin Hu & Zhongfei Li, 2023. "Drifting from the Sustainable Development Goal: Style Drift in ESG Funds," Sustainability, MDPI, vol. 15(16), pages 1-24, August.
    16. Po‐Hsuan Hsu & Kai Li & Chi‐Yang Tsou, 2023. "The Pollution Premium," Journal of Finance, American Finance Association, vol. 78(3), pages 1343-1392, June.
    17. Fernandez-Perez, Adrian & Garel, Alexandre & Indriawan, Ivan, 2022. "In the mood for sustainable funds?," Economics Letters, Elsevier, vol. 217(C).
    18. Bofinger, Yannik & Heyden, Kim J. & Rock, Björn, 2022. "Corporate social responsibility and market efficiency: Evidence from ESG and misvaluation measures," Journal of Banking & Finance, Elsevier, vol. 134(C).
    19. Hao Liang & Lin Sun & Melvyn Teo, 2022. "Responsible Hedge Funds [Role of managerial incentives and discretion in hedge fund performance]," Review of Finance, European Finance Association, vol. 26(6), pages 1585-1633.
    20. Lei, Heng & Xue, Minggao & Liu, Huiling & Ye, Jing, 2023. "Precious metal as a safe haven for global ESG stocks: Portfolio implications for socially responsible investing," Resources Policy, Elsevier, vol. 80(C).

    More about this item

    Keywords

    Delegated asset investment; ESG; Passive fund; Social impact; Socially responsible investing; Sustainable fund;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kob:dpaper:dp2023-01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Office of Promoting Research Collaboration, Research Institute for Economics & Business Administration, Kobe University (email available below). General contact details of provider: https://edirc.repec.org/data/rikobjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.