Conflicting Objectives of ESG Funds: Evidence from Proxy Voting

52 Pages Posted: 1 Mar 2021 Last revised: 18 Jul 2022

See all articles by Tao Li

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate

S Lakshmi Naaraayanan

London Business School

Kunal Sachdeva

Rice University - Jesse H. Jones Graduate School of Business

Date Written: December 31, 2021

Abstract

This paper studies whether ESG funds trade off the long-term sustainability of portfolio firms for greater short-term financial performance. We find that ESG funds reveal their preference for superior returns by voting against E&S proposals when it is uncertain whether these proposals will pass. Consistent with their financial incentives, active ESG funds and non-ESG-focused institutions are more likely to oppose E&S proposals. However, investors do not appear to respond to such strategic voting by withdrawing capital. Overall, our results highlight that investors' conflicting objectives of advancing sustainability while achieving superior returns can impede improvements in corporate sustainability.

Keywords: Mutual funds, ESG investing, Proxy voting, Conflicting objectives

JEL Classification: G23, G34, M14

Suggested Citation

Li, Tao and Naaraayanan, S Lakshmi and Sachdeva, Kunal, Conflicting Objectives of ESG Funds: Evidence from Proxy Voting (December 31, 2021). Available at SSRN: https://ssrn.com/abstract=3760753 or http://dx.doi.org/10.2139/ssrn.3760753

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=7628

S Lakshmi Naaraayanan

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://www.lakshmin.com

Kunal Sachdeva (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

HOME PAGE: http://kunalsachdeva.com

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