Institutional Investor ESG Engagement: The European Experience

Abstract

Awareness of the systemic challenges posed by environmental and social issues has driven regulatory action undertaken at the EU level more strongly by far than in any other jurisdiction. Some pieces of regulation adopted under the umbrella of the so-called European Green Deal rely on institutional investors to drive a shift towards sustainable finance. But in spite of the growing practical relevance of active share ownership, including in its environmental and social dimensions, whether institutions are motivated, and are actually able, to effectively play such crucial a role remains controversial. Even assuming they were committed to not just cosmetically address environmental and social issues, still there are limitations to the reasonable reach of investor action in face of the scale of the challenges at stake. Limitations not only derive from the deficient incentives structure and the collective action issues that are typical of asset managers. They also depend on factors not in control of the asset manager, such as varying end-investor preferences and availability of better ESG data and information. The problem of divergent, and opaque, ESG ratings and indices couples with that of non-consistent frameworks for corporate sustainability disclosures, and the underlying differing concepts of materiality, making it hard for investors to resort to reliable yet essential information they need to properly perform sustainability assessments. Some skepticism concerning institutions’ disposition to sustainability seems to be justified also where evidence referring to their actual voting behavior at investee firms is considered.

The effect of ESG performance on corporate green innovation

“…Moreover, linking ESG performance with green innovation presumes a level of uniformity in both investor behaviour and company response that may not exist in reality. Some investors indeed favour companies with strong ESG records, but others might prioritize short-term financial returns over long-term sustainability impacts (Balp and Strampelli, 2022). The divergent views call for an approach to ESG integration, advocating for regulatory frameworks and incentives that genuinely promote green innovation as well as for transparency and accountability in ESG reporting that goes beyond ticking boxes.…”

An ESG Assessment Approach with Multi-Agent Preference Differences: Based on Fuzzy Reasoning and Group Decision-Making

“…The results of Barkemeyer et al (2023) show that ESG evaluation discrepancies are disputed due to significant selection bias, which poses a hidden risk to investors [23]. Balp and Strampelli (2022) point to issues of variability and opacity in ESG rating indices and criteria, coupled with inconsistent corporate sustainability disclosure frameworks, which make it difficult for investors to obtain reliable assessments [24]. Wan and Dawod (2022) explored the relationship between their ESG ratings and capital ownership preferences for the 2015-2020 period for Shanghai and Shenzhen 300 listed companies [25].…”

Analysis of the Impact of ESG Performance on Financial Market Stability from the Perspective of Multivariate Statistical Models

“…The process of integrating ESG factors into conventional fundamental evaluation with the context of investment management is known as ESG integration [9]. The concept of ESG issues has gained substantial acceptance among institutional and individual investors [10]. More businesses have recently shown a stronger dedication to ESG initiatives in an effort to be acknowledged as socially conscious.…”