Do Institutional Investors Drive Corporate Social Responsibility? International Evidence

Do institutional investors drive corporate social responsibility?

Alexander Dyck, Karl V. Lins, Lukas Roth, and Hannes F. Wagner published an article to assess to what extent the environmental and social performance of firms worldwide is influenced by their shareholders.

They study a large set of listed companies in 41 different countries and conclude:

• Institutional ownership is positively associated with E&S performance across all 41 countries, with additional tests suggesting this relation is causal.
• Institutional investors are motivated by both financial and social returns, increasing firms' E&S performance following shocks that reveal financial benefits to E&S improvements.
• Institutional investors tend to increase firms' E&S performance when they come from countries with a strong community belief in the importance of E&S issues, but not otherwise, transplanting their social norms regarding E&S issues around the world.
• As shareholders significantly influence a company's culture regarding E&S issues, an increase in responsible investor's ownership of US firms could bring meaningful change to economic decision-making in the country.

The study's findings have valuable implications for investment professionals, as they suggest that institutional investors play a crucial role in driving corporate social responsibility and E&S performance.

The study could be pushed further by taking into account the potential heterogeneity in the impact of different types of institutional investors, such as active and passive investors, or the potential impact of other stakeholders on firms' E&S performance.