Pillar 3—Governance Investment Theme

Companies are increasingly considering stakeholders beyond just shareholders through corporate social responsibility (CSR), leading to regulations in various European countries that outline roles for boards and shareholders. The media has also noted this shift, with many Fortune 500 companies establishing board committees focused on environmental issues. CSR management is seen as essential for improving corporate governance, leading to the establishment of various norms and guidelines. Some firms have started linking social responsibility to executive pay, and research shows a positive correlation between CSR strategies and corporate governance characteristics. Over the years, many corporate scandals highlighted the importance of effective corporate governance, prompting calls for greater regulatory oversight. Meanwhile, academic findings on the link between corporate governance and financial performance show varied results, often depending on data sources and performance measures used. One of the most relevant aspects of an effective corporate governance is represented by the ESG disclosure. Firms disclose CSR information to gain legitimacy and a better reputation but also to reduce information asymmetry, lowering capital costs and enhancing firm value. The effectiveness of ESG disclosure on firm performance is still debated among scholars. While many studies suggest a positive link between CSR disclosure and market value, others find no significant or even negative correlation. The chapter also debates over the shareholder rights issue, where studies show mixed results on the impact of shareholder activism. Finally, using a Recursive Portfolio Approach, the correlation between overall social performance and portfolio financial performance is analyzed by categorizing stocks based on their governance scores. In addition, also specific investment themes are investigated, namely: Compensation, ESG reporting, and Shareholder rights.