Why Do They Care? The Market for Corporate Global Responsibility and the Role of Institutional Investors

Environment and Planning A, Forthcoming

Posted: 31 Aug 2005

See all articles by Gordon L. Clark

Gordon L. Clark

Oxford University - Smith School of Enterprise and the Environment

Tessa Hebb

Carleton Centre for Community Innovation

Abstract

Institutional investors, primarily pension funds, drive global financial markets. The result is investors vulnerable to the risks companies face in global consumer and capital markets. While some market risks are inevitable, others such as reputation risk can be mitigated through increased corporate social and environmental standards and the increased transparency that such higher standards demand. The transparency necessitated by reputation management has a dual role in monitoring corporate behaviour and providing all stakeholders (internal and external) with the information to evaluate corporate behaviour. Driving this process is the belief that higher standards of corporate responsibility pay off for investors over the long-term through both potential equity premia and risk reduction. This paper presents a model for understanding how and why institutional investors may encourage firms to adopt higher standards. To illustrate our argument, we rely upon the experience of two large pension funds: the UK Universities Superannuation Scheme's strategy of corporate engagement and its attempts to encourage firms to raise their environmental standards by focusing on the climate change impacts of USS investments, and CalPERS' policy of company-screening in emerging markets using both the CERES and Sullivan Principles to monitor corporate behaviour. Investor engagement in corporate responsibility offers an insight into investors' role in global standard-setting and global citizenship.

Keywords: Corporate responsibility, pension funds, brand image, reputation

JEL Classification: D23, G14, G23, L14

Suggested Citation

Clark, Gordon L. and Hebb, Tessa M., Why Do They Care? The Market for Corporate Global Responsibility and the Role of Institutional Investors. Environment and Planning A, Forthcoming, Available at SSRN: https://ssrn.com/abstract=790486

Gordon L. Clark

Oxford University - Smith School of Enterprise and the Environment ( email )

South Parks Road
Oxford, OX1 3QY
United Kingdom
+44 1865 285197 (Phone)
+44 1865 285073 (Fax)

HOME PAGE: http://www.geog.ox.ac.uk/staff/glclark.html

Tessa M. Hebb (Contact Author)

Carleton Centre for Community Innovation ( email )

1125 Colonel By Drive
DT 2125
Ottawa, Ontario K1S0R2
Canada

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