Does an asset owner’s institutional setting influence its decision to sign the Principles for Responsible Investment?

Forthcoming in Journal of Business Ethics

70 Pages Posted: 5 Oct 2016 Last revised: 6 May 2020

See all articles by Andreas G. F. Hoepner

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; Stockholm School of Economics - Mistra Financial Systems (MFS); European Commission's Technical Expert Group for Sustainable Finance

Arleta Majoch

University of Reading - ICMA Centre

Xiaoyan Zhou

University of Oxford-Smith School of Enterprise and the Environment

Date Written: October 4, 2016

Abstract

From a simple idea to unite asset owners in their quest for responsible investment (RI) at its launch in April 2006, the United Nations supported Principles for Responsible Investment (PRI) have grown in just one decade into an initiative with more than 1,500 fee paying signatories. Jointly, the PRI’s signatories hold assets worth more than $80 trillion, making it one of the more prevalent not-for-profit organisations worldwide. Furthermore, the PRI’s ambitious mission to transform the financial system at large into a more sustainable one makes it a worthwhile subject of inquiry from an institutional perspective. We undertake an empirical investigation of the adoption of the PRI by asset owners during five crucial years of the association’s emergence: 2007-2011. Following a tripartite view of institutional theory proposed by Scott (1995), we explore if regulative, normative, and cultural-cognitive factors influence an asset owner’s decision to subscribe to the PRI. Applying both parametric and non-parametric survival analysis, we find that asset owners are indeed significantly affected by normative, cultural-cognitive and regulative aspects. In particular, (i) public service employee and labor union pension funds (ii) from social backgrounds more culturally aligned with values represented by the RI movement (iii) with historically more voluntary legislation on environmental, social and governance (ESG) issues are most likely to sign the PRI. In contrast, institutional environments with a higher number of pre-existing mandatory ESG regulation decrease the likelihood of signing the PRI. Our results indicate that normative and cultural-cognitive factors were crucial contributors to the PRI’s growth. With respect to the regulative environments, our results imply that some asset owners may use the PRI as a collective industry initiative to substitute for mandatory legislation. Conversely, a high level of historical mandatory legislation may constrain organizational resources that could otherwise be dedicated to voluntary initiatives such as PRI. Our findings are robust to relevant controls and econometric concerns.

Keywords: Institutional Theory, Asset Owners, Pension Funds, Principles for Responsible Investment (PRI)

JEL Classification: G22, G23, G34, H55, M14

Suggested Citation

Hoepner, Andreas G. F. and Majoch, Arleta and Zhou, Xiaoyan, Does an asset owner’s institutional setting influence its decision to sign the Principles for Responsible Investment? (October 4, 2016). Forthcoming in Journal of Business Ethics, Available at SSRN: https://ssrn.com/abstract=2847773 or http://dx.doi.org/10.2139/ssrn.2847773

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

Stockholm School of Economics - Mistra Financial Systems (MFS) ( email )

MISUM
Box 6501, SE-113 83 Stockholm
Sweden

European Commission's Technical Expert Group for Sustainable Finance ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Arleta Majoch (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Xiaoyan Zhou

University of Oxford-Smith School of Enterprise and the Environment

South Parks Road
P.O. Box 242
Oxford, Oxfirdshire OX1 3QY
United Kingdom
7921513972 (Phone)
7921513972 (Fax)

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