RIEB Discussion Paper Series No.2023-01

Title

Sustainable Investing Under Delegated Investment Management

Abstract

This paper examines how profit-motivated fund managers of sustainable funds and passive funds choose their level of engagement with portfolio firms to enhance profitability and mitigate any negative externalities, particularly when aiming to attract capital from socially responsible investors. We consider the fund-ownership effect resulting from investor capital allocation, which has several implications for environmental, social and governance (ESG) investments, the diminishing impact of shareholder ESG engagement on firms with high-ESG scores, and the increasing proportion of ESG-indexed funds within sustainable funds on the ESG and financial performances generated by portfolio firms.

Keywords

Delegated asset investment; ESG; Passive fund; Social impact; Socially responsible investing; Sustainable fund

JEL Classification

D83, G23, G32, M14

Inquiries

Meg ADACHI-SATO
Junior Research Fellow, Research Institute for Economics & Business Administration, Kobe University
E-mail: m-sato@osaka-ue.ac.jp

Hiroshi OSANO
Faculty of Economics, Konan University