RIEB Discussion Paper Series No.2023-01

RIEB Discussion Paper Series No.2023-01


Sustainable Investing Under Delegated Investment Management


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.


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

JEL Classification

D83, G23, G32, M14


Junior Research Fellow, Research Institute for Economics & Business Administration, Kobe University
Faculty of Business Administration and Accountancy, Khon Kaen University
E-mail: megasato@diamond.kobe-u.ac.jp.

Hiroshi OSANO
Faculty of Economics, Konan University