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The value of a Principles for Responsible Investing designation: A setting for environmental social and governance natural experiments

Citation

Daugaard, D, The value of a Principles for Responsible Investing designation: A setting for environmental social and governance natural experiments, Environmental, Social and Governance for Sustainability Conference 2021, 29 October 2021, online, pp. 1-7. (2021) [Conference Extract]


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Abstract

Fund flows determine assets under management which is a primary concern for investment managers. In contrast to fund flows, current investment fund literature is dominated by research on return performance. This article therefore makes a concrete addition to the literature by researching fund flows. The practical concern for this research is whether the United Nationís Principles for Responsible Investing (PRI) drive fund flows towards socially responsible investing (SRI) funds. Consequently, this research focuses on SRI funds and funds managed by signatories to the PRI. There are significant endogeneity issues encountered in fund flow analysis, so innovative techniques are necessary. SRI fund flows are an ideal context for creating natural experiments using environmental, social and governance (ESG) events and implementing system Generalized Method of Moments (GMM). The results from these techniques raise doubts about the ability of the PRI to influence SRI fund flows. This outcome questions the potential for PRI and other intergovernmental initiatives to meaningfully contribute to sustainable developments.

This article creates experiments using ESG events. SRI fund analysis is an ideal candidate for natural experimentation. A longitudinal collection of ESG events act as experimental shocks on investor preferences. A series of high profile ESG events are likely to motivate the choice of SRI funds over more conventional funds. The exogenous nature of these events should mitigate the confounding effects of endogeneity and thereby clarify our understanding of what drives SRI fund flows. This chapter demonstrates that the ESG events motivate the choice by investors of SRI over conventional funds. The result shows the ESG events create a successful natural experiment platform.

The focus of this article is to test whether investment firms signing the PRI experience superior fund flows. The ESG natural experiments are therefore applied to test if investors prefer an SRI fund managed by a PRI signatory. The results do not reveal a significant additional flow to SRI funds managed by PRI signatories. Further, the natural experiments show a negative impact on conventional retail funds when managed by a PRI signatory. These findings raise doubts as to the value of investment managers signing the PRI and questions the potential for the PRI to effectively influence SRI investment practices. In a broader sense, the findings raise doubts that the PRI and other similar intergovernmental initiatives can meaningfully contribute to developing a sustainable world.

Item Details

Item Type:Conference Extract
Keywords:socially responsible investing, environmental, social and governance, fund flows, natural experiment
Research Division:Commerce, Management, Tourism and Services
Research Group:Banking, finance and investment
Research Field:Environment and climate finance
Objective Division:Commercial Services and Tourism
Objective Group:Financial services
Objective Field:Investment services (excl. superannuation)
UTAS Author:Daugaard, D (Associate Professor Dan Daugaard)
ID Code:148117
Year Published:2021
Deposited By:Economics and Finance
Deposited On:2021-12-03
Last Modified:2022-05-24
Downloads:0

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