State Pension Funds and Corporate Social Responsibility: Do Beneficiaries’ Political Values influence Funds’ Investment Decisions?
Journal of Business Ethics, Forthcoming
58 Pages Posted: 24 Sep 2015 Last revised: 19 Jun 2019
Date Written: November 28, 2018
This study explores the underlying drivers of US public pension funds’ tendency to tilt their portfolios towards companies with stronger corporate social responsibility (CSR). Studying the equity holdings of large, internally-managed US state pension funds, we find evidence that the political leaning of their beneficiaries and political pressures by state politicians affect funds’ investment decisions. State pension funds from states with Democratic-leaning beneficiaries tilt their portfolios more strongly towards companies that perform well on CSR issues, and this tendency is intensified when the state government is dominated by Democratic state politicians. Moreover, we find that funds which tilt their portfolios towards companies with superior CSR scores generate a slightly higher return compared with their counterparts. Overall, our findings indicate that funds align their investment choices with the financial and non-financial interests of their beneficiaries when deciding whether to incorporate CSR into their equity allocations.
Keywords: Corporate social responsibility; CSR; fiduciary duty; political values; portfolio decisions; state pension funds; socially responsible investing
JEL Classification: G11; H55; H75; M14
Suggested Citation: Suggested Citation