Conflicting Objectives Between ESG Funds and Their Investors: Evidence From Mutual Fund Voting Records

1 Pages Posted: 1 Mar 2021 Last revised: 5 Jan 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

We examine whether ESG funds trade-off greater short-term financial performance against the long-term sustainability of portfolio firms. Studying voting records, we find that ESG funds vote against their stated pro-social mandate, with this pattern persistent in within-institution, across-institution, and close-vote tests. We mitigate concerns about proposal quality, firm quality, and the flow sensitivity of investors. Simulating a correction to this pattern suggests an increase in the passage of environmental and social proposals and greater sustainability disclosures. Although investors delegate their sustainable preferences through funds, the conflicting objectives between ESG funds and their investors can impede improvements in the corporate sustainability of portfolio firms.

Keywords: Mutual Funds, Voting, Corporate Governance, Socially Responsible Investment, Corporate Social Responsibility, Environmental Social and Governance

JEL Classification: G23, G34, M14

Suggested Citation

Li, Tao and Naaraayanan, S Lakshmi and Sachdeva, Kunal, Conflicting Objectives Between ESG Funds and Their Investors: Evidence From Mutual Fund Voting Records (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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
354
Abstract Views
1,360
rank
116,315
PlumX Metrics