The global sustainability footprint of sovereign wealth funds

Hao Liang · Luc D. R. Renneboog

67 citations0/0 files storedOxford Review of Economic Policy

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State Capitalism and Financial Governance Corporate Social Responsibility Reporting Sustainable Finance and Green Bonds

Abstract

Abstract With the emergence of sovereign wealth funds (SWFs) around the world managing equity of over $8 trillion, their impact on the corporate landscape and social welfare is being scrutinized. This study investigates whether and how SWFs incorporate environmental, social, and governance (ESG) considerations in their investment decisions in publicly listed corporations, as well as the subsequent evolution of target firms’ ESG performance. We find that SWF funds do consider the level of past ESG performance as well as recent ESG score improvement when taking ownership stakes in listed companies. These results are driven by the SWF funds that do have an explicit or implicit ESG policy and are most transparent, and by SWF originating from developed countries and countries with civil law origins. In relation to engagement, we find by means of two natural experiments with exogenous shocks (the Deepwater Horizon catastrophe and Volkwagen diesel scandal) that the ESG scores do not change significantly more for firms in which SWFs have ownership stakes. This potentially suggests that SWFs in general do not actively steer their target firms towards higher levels of ESG.

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References

2008The Economic Consequences of Legal Origins 2016Socially responsible firms 2016On the Foundations of Corporate Social Responsibility 2008The price of ethics and stakeholder governance: The performance of socially responsible mutual funds 2012The role of state and foreign owners in corporate risk-taking: Evidence from privatization 2014From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance 2010Firm values and sovereign wealth fund investments 2015The Sovereign Wealth Fund Discount: Evidence from Public Equity Investments

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