Do fund managers’ commitments to responsible investing affect private information acquisition, information environment, and corporate sustainability?

Abstract

We investigate the effects of mutual funds’ commitments to responsible investing on their information acquisition activities and the corresponding externalities for other stakeholders. After committing to responsible investing (via UNPRI), fund managers increase private information acquisition activities, i.e., corporate site visits, particularly focusing on environmental and social issues. These visits generate negligible private investment value for the visiting funds. However, the information environment at the stock level improves following these visits with lower consensus analyst forecast errors. In addition to the information production role of these visits, they also generate positive externalities for other stakeholders through incremental improvements in the sustainability practices of the firms receiving sustainability-focused site visits from UNPRI fund managers. Collectively, the paper highlights the private costs and social benefits of responsible investing.

Keywords: responsible investing, information acquisition, information environment, corporate visit, mutual funds, United Nations Principles for Responsible Investment (UNPRI)

JEL Classification: M41, M14, G23, G14