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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

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2023-01.pdf
    File Function: Revised version, 2023
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    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. 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.
    7. 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.
    8. 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.
    9. 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 risk†," Business and Politics, Cambridge University Press, vol. 19(2), pages 298-326, June.
    10. Opp, Marcus & Oehmke, Martin, 2020. "A theory of socially responsible investment," CEPR Discussion Papers 14351, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

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    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

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