Les membres des fonds de pension manifestent un appétit croissant pour l’investissement socialement responsable (ISR). Dans cet article, qui s’appuie sur une revue de la littérature académique sur ces sujets, nous discutons de la performance de l’investissement ISR, en particulier de la relation entre la politique de responsabilité sociale (RSE) des entreprises et leur performance financière, et de l’impact sur les rendements de l’évolution des préférences des investisseurs envers des considérations environnementales, sociales et de gouvernance (ESG). Enfin, nous discutons du rôle de la politique d’engagement actionnarial des investisseurs institutionnels, qui permet aux membres des fonds de pension d’avoir un impact sur les entreprises et la société dans son ensemble.

There is increasing appetite from pension schemes members for socially responsible (SR) investment[1]. In this article, we discuss the performance of SR investment, in particular the relationship between firms’ corporate social responsibility (CSR) policy and their financial performance, and the impact on returns of shifting investors’ preferences towards environmental, social and governance (ESG) considerations. Finally, we discuss the role of institutional investors’ active ownership, which allows pension funds members to play a key role and impact firms and society at large.

Firms’ corporate social responsibility (CSR) and financial performance

There is a large debate on the relationship between firms’ CSR and their financial performance. For example, focusing just on the pricing of firms’ CO2 emissions, some previous empirical evidence shows that environmentally sustainable firms tend to outperform[2], while others find that firms with higher CO2 emissions earn higher returns[3]. Meta-analyses show that academic findings are mixed[4]. One of the reasons for this conflicting evidence is related to limited data availability, the potentially changing relationship between CSR and firms’ financial performance over time[5], and the absence of standardised measures of environment and social performance[6]. Moreover, one major issue when trying to evaluate the causal impact of CSR on firms’ performance is the so called “endogeneity issue”. Are firms doing well by doing good vs are they doing good by doing well[7]? Research studies not only vary in their sample period and ESG data used, they also differ substantially in terms of methods used. For example, some research uses event studies to assess the impact of an exogenous, environment-related event on a firm’s stock price (for example, environmental data releases or regulation enactments; or a firm-specific news). Event-study approaches focus on short-time windows around an event, which may limit the endogeneity problem, but also make their scope more limited. Regression analyses can be used to examine the relationship between CSR and financial performance within a larger sample. However, simple regression studies cannot differentiate between correlation and causality[8]. Papers using regression discontinuity design[9] attempt to demonstrate that corporate environmental actions, such as the passage of an environmental resolution by a close margin, have a causal impact on economic success and thus firms’ value. Finally, some researchers use portfolio analysis to evaluate the performance of investing in environmentally sustainable firms: they form portfolios sorted by firms’ ESG policies and compare the average abnormal returns of those portfolios[10]. The theoretical arguments explaining how a firm’s sustainability might affect its value are also debated[11]. Some argue that a firm’s environmental or social improvement may not be compatible with profit maximisation. They regard a firm’s environmental or social activity as a manifestation of managerial agency problems, which might destroy shareholder wealth[12]. Others see environmental improvement as a risk-mitigation instrument and source of market competitiveness in a world rapidly transitioning to lower-carbon technologies[13]. On the investors’ side, stocks of firms with bad CSR policies (for example high CO2 emissions) could be considered as “sin stocks”; and be shunned by socially responsible investors, which could lead to significantly depressed valuations (and more attractive expected returns going forward). But it could also be that the risks are underpriced and not fully integrated by investors, who ignore information about global warming and its related risks.

Impact of investors’ changing preferences towards ESG

The past decade has seen significant changes in the way investors perceive environmental risks and this has led to tremendous growth in climate-conscious investing. More than 3000 organisations have become signatories of the United Nations Principles of Responsible Investment (PRI)[14]. There are several reasons for this. First, the information available on climate-change costs (for example on extreme weather events such as major hurricanes or wildfires) has grown considerably. In addition, regulatory initiatives have emerged, especially in Europe (the European Commission action plan for sustainable finance, green taxonomy, European labels, etc.), to improve the transparency of available climate information and encourage investors to take environmental criteria into account in their portfolio construction. Many initiatives have emerged, bringing together bankers or investors (such as the Climate Finance Leadership Initiative / Climate Action 100+ and Principles for Responsible Banking) for joint actions such as engagement or divestment campaigns[15]. Finally, individual investors’ appetite for responsible investments has also increased considerably[16]. These changes in investors’ concerns for the environment have several consequences. On the one hand, they modify investors’ appreciation of climate risks, e.g., the way investors incorporate fundamental climate information into asset prices. On the other hand, they can modify investors’ demand for green assets by changing their relative preferences for the different types of investments available, such as “green” and “brown”. Several theoretical works suggest that investors’ preferences for green assets affect stock prices[17]. In particular, the model in Pastor et al. (2020) predicts that green assets should outperform following unexpected upward shifts in investors’ environmental preferences. However, from an empirical perspective, identifying those shifts is far from obvious. Both climate risk and changing investors’ preferences can potentially have an impact on asset valuations. When we observe an increase in the price of green assets relative to conventional assets, we do not know whether this price change is related to the incorporation of fundamental information or to a change in investor preferences. Brière and Ramelli (2021b) tackle this question and propose a way to estimate the changes in investors’ preferences for green assets that are not related to fundamental information, and to measure their impact on long-term equity returns. To do this, they evaluate arbitrage activity on the climate ETFs[18] market and estimate the changes in investor appetite for this theme, which are not yet incorporated in the value of the underlying securities that make up these ETFs. By measuring the difference between these arbitrage flows on green and conventional ETFs, they can obtain an estimate of the non-fundamental demand for green assets. They find that green sentiment influences the value that investors attach to corporate environmental responsibility as priced by stock markets. A one-standard-deviation higher green sentiment is associated with an outperformance of a one standard-deviation more environmentally responsible firm of approximately 30 basis points over a one-month horizon and 60 basis points over a six-month horizon, net of the effects of other firm characteristics. The effect of green sentiment is independent from, and additional to, the effect of the news-based climate risk. Investor environmental preferences also have an impact on real corporate decisions. Higher green sentiment is associated with an increase in firms’ capital expenditures and cash holdings. Understanding the effects of investors’ changing preferences for ESG on assets returns and real economic outcomes is crucial. These changing preferences can have a key impact on the expected returns of SR vs conventional investment going forward, which in turn influence firms’ cost of capital and incentives to transition to a greener economy.

The role of active ownership

Large institutional investors, which own diversified and long-term portfolios, are often universal owners, with substantial equity stakes in most firms[19]. This exposes them to the risks of large externalities resulting from environmentally and socially irresponsible firms’ behaviour. Shareholder activism, which refers to investors’ influence on firms’ policy though the use of an ownership position, can be a key tool at their disposal to have an impact on firms’ decisions. Environmental and social activism is often motivated by a misalignment of preferences between shareholders and management. In the presence of externalities generated by the firms, it will be in investors’ interest to minimise the potential costs of those externalities by influencing the firms’ businesses. Shareholder activism can take various forms. The most popular ones are (1) exiting (selling shares), (2) voting actively at general meetings, and (3) engaging behind-the-scenes with the firms’ management and board[20].

  • The various forms of shareholder activism

Shareholders who are dissatisfied with firm policy may choose to sell their shares. The threat of exit can potentially have a large impact on firms[21]. Survey results suggest that exits due to poor performance are quite common and have been used by 49% of institutional investors[22]. Voting at general meetings is another way to influence companies’ decisions. Institutional investors vote can easily cast votes through the platforms of proxy advisory agencies such as ISS. Support rates tend to be very high for management-sponsored proposals. Support for shareholder-sponsored resolutions is on the rise compared to the previous decade. Empirical evidence suggests that the most common voting pattern of institutional investors is to support board independence, oppose takeover defences and oppose unequal voting rights (dual class shares)[23]. Mutual funds also tend to vote in support of shareholder proposals that are thought to be wealth-increasing (such as board, governance and compensation proposals). In recent years, with the development of socially responsible funds, they have increasingly supported environmental and social resolutions[24]. Funds with larger and more concentrated funds, or with lower turnover, are more inclined to have an independent voting policy and to depart from proxy advisors’ recommendations[25]. Behind-the-scenes engagement involves private communication between activist shareholders and the firm’s board or management, which tends to precede public measures such as voting, shareholder proposals and voiced opinions. In a sense, the existence of other forms of public activism can be taken as a signal that behind-the-scenes engagements were unsuccessful. Writing to the firm’s management or organising face-to-face meetings with the management or non-executive directors are more common behind-the-scenes engagement methods[26]. Needless to say, behind-the-scenes engagement is difficult to measure. However, surveys and proprietary databases shed some light on the prevalence and effectiveness of this channel. Early work suggested that private communication with management was done mainly by hedge funds[27]. More recently, McCahery, Sautner and Starks (2016) find that 65% of their survey participants, representing a broad group of institutional investors, had direct discussions with management in the past five years. Institutional investors interested in influencing corporate environmental practices have recently joined forces via common initiatives, such as the Climate Action 100+. Their goal is to influence corporate accountability and oversight of climate change risk and greenhouse gas emissions across the value chain. Participants in the initiative also seek to increase corporate disclosure in a manner that would help investors assessing the firms’ sensitivity to climate change scenarios. Cooperation on social and environmental issues is also undertaken though the Principles for Responsible Investment (PRI) initiative. The mission of the initiative, representing the vision of signatories holding $59 trillion assets, is to incorporate ESG issues into investment and ownership policies. They also seek to increase corporate disclosure on ESG issues for their portfolio companies. The widespread popularity of these initiatives is consistent with the broad emergence of a new voluntary institutional corporate social responsibility infrastructure that aims to put pressure on firms in the absence of a global governance.

  • Impact of shareholder activism

There is a vast literature investigating the impact of shareholder activism on the performance and ESG ratings of targeted firms. The early empirical literature was sceptical of the view that investor voting can serve as an effective monitoring tool and have an impact on stock performance and firm operations[28]. Recent work is more supportive of the beneficial role of voting. Voting outcomes on specific issues, such as the adoption of governance proposals, have been shown to affect firm valuations, with an increase in shareholder value by 2.8% on average[29]. Doing independent vote research is significantly more costly than following proxy voting recommendations, but can be profitable for active owners. Iliev & Lowry (2014) analyse the effect of independent vote research on fund performance. Funds with high benefits to active voting, are less likely to follow ISS[30] recommendations and tend to earn higher risk adjusted returns, suggesting that doing independent vote research can be profitable for active owners. Early studies find a small impact of behind-the-scenes engagement on target firms’ governance, and a negligible impact on the firm’s value. This early evidence[31] is based on the analysis of the engagements of large pension funds (e.g., CalPERS), mutual funds, or shareholders associations (e.g., the Council of Institutional Investors). The absence of impact was mainly attributed to inadequate monitoring and ownership dispersion. More recently, Becht, Franks, Mayer, & Rossi (2008) studied the governance engagements of the Hermes Focus Fund, a UK fund owned by the British Telecom Pension Scheme, and found that the engagement strategy led to an abnormal return of 4.9% net of fees. Dimson, Karakas & Li (2015) also provided favourable results on the effects of ESG behind-the-scenes activism of a large institutional investor with a major commitment to responsible investment. Successful engagement was followed by a yearly abnormal return of 4.4% and led to improved accounting performance and superior governance of the targeted companies. The most successful engagements target firms with reputational concerns and a higher capacity to implement corporate social responsibility changes. When it comes to pension fund activism, Barber (2007) found significant positive short run returns for CalPERS’ activism through their use of a public focus list of target companies. However, the long-term effects of CalPERS activism tend to be statistically insignificant. Overall, recent studies suggest that the market reaction to activism is positive, consistent with the view that activism creates shareholder value. Studies tend to support the view that active investors can make a profit from their engagements. Moreover, firms’ ESG ratings tend to improve after successful engagements.


Mots-clés : Corporate Social Responsibility – ESG investing – Green sentiment – Active ownership – Shareholder activism

*Cet article est extrait du Discussion paper « Strategic Asset Allocation for a Default Pension Plan », publié par Marie Brière en octobre 2021 : https://research-center.amundi.com/article/strategic-asset-allocation-default-pension-plan

[1] Bauer, Ruof and Smeets, 2020; Brière and Ramelli, 2021a

[2] see, e.g. In, Park and Monk, 2019

[3] Bolton and Kacperczyk, 2021

[4] e.g., Margolis et al., 2009

[5] Drei et al., 2019

[6] e.g., Berg, Koelbel and Rigobon, 2019

[7] Sentences in bold are at the initiative of the editor

[8] Kruger, 2015

[9] e.g., Flammer, 2015

[10] In, Park and Monk, 2019, Drei et al., 2019

[11] Ferrell et al., 2016

[12] e.g., Friedman, 2007

[13] e.g., Porter and Kramer, 2011

[14] https://www.unpri.org/annual-report-2020/foreword and sector

[15] Dimson, Karakas and Li, 2020

[16] Eurosif, 2020; Brière and Ramelli, 2021a

[17] e.g., Heinkel et al., 2001; Pastor et al., 2020; Pedersen et al., 2020

[18] NDLR: ETFsn, or Exchange Traded Funds, are types of securities that track an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same way a regular stock can.

[19] Mattison et al., 2011; Brière Pouget and Ureche-Rangau, 2019

[20] Bekjarovski and Brière, 2018

[21] Admati & Pfleiderer, 2009

[22] McCahery, Sautner & Starks, 2016

[23] Appel, Gormley, & Keim, 2016

[24] Brière, Pouget and Ureche-Rangau, 2019

[25] Iliev & Lowry, 2014

[26] Barko, Cremers & Renneboog, 2017

[27] Brav et al. 2008

[28] e.g., Gillan & Starks, 2007

[29] Cuñat, Gine, & Guadalupe, 2012; Flammer, 2015

[30] NDLR: ISS est l’une de principales sociétés mondiales de proxy advisors. Pour plus d’explications, voir notamment https://variances.eu/?s=laverie&id=4748&post_type=post

[31] see e.g., Smith, 1996


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Marie Brière