Do Institutional Investors Vote Responsibly? Global Evidence

Abstract

This study investigates the true sustainability actions of institutional investors, with a focus on potential disparities in voting patterns between US and European investors. Utilizing an extensive dataset of Environmental, Social, and Governance (ESG) and director voting data spanning from 2018 to 2023 from the Insightia database, the study encompasses 188 institutional investors globally, including 'The Big Three,' and major proxy advisors ISS and Glass Lewis. Employing the political science W-Nominate model, the research maps investor sustainability ideology on a spatial model [-1,+1]. The findings reveal that European institutional investors, confronted with more robust social and legal norms, genuinely exhibit ESG preferences, while the sustainability claims of many US investors, including The Big Three and self-proclaimed ESG funds, may be deemed as greenwashing.

This paper makes a substantial contribution to the rapidly expanding body of literature on institutional investors and ESG. It is the first to use of the W-Nominate model in an international context with a substantial and recent sample of ESG voting items, providing a more comprehensive global understanding of the factors influencing sustainable investor behavior. The findings emphasize the critical consideration of an investor’s domicile and type when assessing true sustainability preferences, particularly in the context of anti-ESG developments.

The paper underscores the necessity to scrutinize institutional investors’ sustainability claims and advocates for regulators to enforce ESG disclosure regulations. Asset owners and other clients of institutional investors are urged to exercise caution when interpreting sustainability commitments, recognizing that, for some, these may be more driven by financial considerations than genuine environmental and social concerns, often lacking actual shareholder actions to foster sustainability.

Keywords: Engagement; Corporate Sustainability; Institutional investors; ESG; voting; International

JEL Classification: G23, G32, G34, G39, M14