Do Institutional Investors Drive Corporate Social Responsibility? International Evidence. Flashcards
Dyck, Lins, Roth, Wagner (2019)
What is the main idea?
An assessment of whether shareholders drive the environmental and social performance of firms around the globe.
How outsiders with no financial stake are connected to ESG?
Outsiders do not bear the costs of E&S activities and will press for improvements.
What is the possible hypothesis?
E&S investments are beneficial to shareholders if they are a driving force behind firms E&S choices. But there needs to be testing whether it is the shareholders that press for this change in E&S performance.
What authors create for testing who press for changes in E&S?
A firm-level environmental and social performance measures are created from several E&S data providers. Measures are combined with the institutional ownership data and financial data.
What institutional investors have competition for and why their exposure to social norms is non-negligible?
They have to face a competition for capital, while a worse performance will affect fund flows, which will increase the importance of financial returns.
Their exposure to social norms is non-negligible as they need to network and raise capital locally.
What conclusion is there regarding strong and weak E&S country investors?
Investors from weak E&S countries show no impact when considering firm’s E&S performance. This inverse is applicable.
What is an exception which consistently influence firms on E&S?
No matter the country, pension plans consistently influence firms to strengthen E&S performance.
What are two settings in which institutional owners could have greater impact on E&S performance?
- An investor becomes a signatory to the UN Principles for Responsible Investment. (it requires investors incorporate ESG issues into their analysis)
- The firm has greater scope for E&S improvement. (Greater effects were expected in the firms with low initial E&S performance.)
What are two mechanisms used for demanding change?
- Exit and selection. (Use negative or positive screening) (This method does not account for broad, large-scale changes)
- Voice. (It is not the dominant mechanism, as shareholder proposals are rather scarce and the proposals are rarely voted on)
When are investors motivated by social returns on E&S performance?
Only when these investors are from countries where social norms reveal a greater demand (above median) on ESG performance.
Which geographical location was notable?
Only European institutional investors were shown to impact firms E&S performance. (EU occupy top 17 positions in E&S rankings). No other region having an impact on E&S.
By what investors aroung the world are motivated?
They are motivated by both financial and social norms when address firms E&S performance.
What happens when the social norms are strong enough?
Strong social norms can overcome market pressures to focus primarily on financial returns, but the strength of the norms matters greatly.
How does country norms affects the investors and the E&S performance of the firms?
Investors from high E&S social norms affect E&S firms performance and investors from unsupportive countries do not drive the E&S performance.
