Sovereign Wealth Funds as Sustainability Instruments? Disclosure of Sustainability Criteria in Worldwide Comparison

Abstract

Sovereign wealth funds (SWFs) are state-owned investment vehicles intended to pursue national objectives. Their nature as long-term investors combined with their political mandate could make SWFs an instrument suited to promote sustainability. As an essential precondition, it is important for SWFs to commit to sustainability criteria as part of an overarching strategy. In the article, we present the sustainability disclosure index (SDI), an original new dataset for a selection of over 50 SWFs to investigate whether SWFs disclose sustainability criteria covering environmental, social, economic, and governance aspects into their mandate. In addition to an empirical measurement of the disclosure rate, we conduct multiple regressions to analyze what factors help to explain the variance between SWFs. We see that a majority of SWFs disclose at least some of the sustainability criteria. However, until today, only a small minority address a broad selection as a possible basis for a comprehensive sustainability strategy. While a high-state capacity and a young population in a country as well as a commitment to the international Santiago Principles are positively associated with a higher disclosure rate, we find no evidence for strong effects of the economic development level, the resource abundance, and the degree of democratization of a country or of the specific size and structure of a fund. Identifying favorable conditions for a higher commitment of SWFs could help to initiate pathways to become functional sustainability instruments.

The times are they a-changin’? Tracking sovereign wealth funds’ sustainable investing

“…As state-sponsored investors, in principle SWFs are ideally placed to embrace sustainable investment. Due to the sheer size of their assets and long-term investment horizon, SWFs have the potential to catalyze change with regard to eliminating pollution, improving working conditions, pursuing gender equality, and promoting corporate governance (Liang & Renneboog, 2020 ; Wurster & Schlosser, 2021 ). However, SWFs are a very heterogeneous group, composed of institutions with different mandates stretching from fiscal revenues stabilization and inter-generational savings to national economic development.…”