The Role of Mutual Funds in Corporate Social Responsibility
- PDF / 874,929 Bytes
- 23 Pages / 595.276 x 790.866 pts Page_size
- 83 Downloads / 197 Views
ORIGINAL PAPER
The Role of Mutual Funds in Corporate Social Responsibility Zhichuan Frank Li1 · Saurin Patel1 · Srikanth Ramani2 Received: 6 April 2019 / Accepted: 5 September 2020 © Springer Nature B.V. 2020
Abstract This paper examines the role of mutual funds in corporate social responsibility (CSR). Using a fund-level, holdings-based CSR score, we find that CSR-friendly mutual funds improve firms’ CSR standings. This effect is more pronounced for firms with higher mutual fund ownership and stronger corporate governance. We further show that while CSR-friendly mutual funds have influence on almost all CSR categories, they focus on increasing CSR strengths rather than reducing CSR concerns. We also discover that CSR-friendly funds are more likely to vote in favor of CSR proposals, and that firms owned by CSR-friendly funds are more likely to link their CEO compensation to CSR outcomes. These results suggest that actively managed mutual funds, which were previously thought to be indifferent (or even detrimental) to social and ethical issues, play a significant role in corporate social outcomes of the firms they invest in. Keywords Corporate social responsibility · Mutual funds · Socially responsible investment · Corporate governance · Executive compensation JEL Classification D22 · G12 · G15 · M14
Introduction Socially responsible investing has experienced tremendous growth over the past two decades. The US Social Investment Forum (USSIF) reports that assets managed using environmental, social, and governance (ESG) criteria totaled $12 trillion in 2018, while the Global Sustainable Investment Alliance estimated the number was $30.7 trillion.1 Investment companies respond to this trend by introducing new mutual
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10551-020-04618-x) contains supplementary material, which is available to authorized users. * Zhichuan Frank Li [email protected] Saurin Patel [email protected] Srikanth Ramani [email protected] 1
Ivey Business School, Western University, Richard Ivey Building 3322, London, UK
University of New Brunswick, Fredericton, Canada
2
funds with explicit criteria related to corporate social responsibility (CSR).2 Despite the rapid growth in socially responsible investments, many investment firms still do not support or implement CSR issues; for example, Blackrock Invesco, BNY Mellon, and Vanguard all voted against investor-led climate change resolutions multiple times.3 It is unclear to what extent these funds, along with other shareholders, have the interest and ability to take concrete action in influencing the social
1
GSI Alliance, “2018 Global Sustainable Investment Review,” accessed March 10, 2020, (https://www.gsi-alliance.org/wp-content/ uploads/2019/03/GSIR_Review2018.3.28.pdf). 2 For example, Fidelity Investments introduced two new index funds in 2017 to provide investors with a wider array of options for their ESG investments. Fidelity, “Fidelity Launches First Two Sustainability-Foc
Data Loading...
