As discussed earlier, the apparent reverse causality concern makes it difficult to identify the causal effect of institutional investors on CSR. In this study, we try to understand how institutional investors use ownership and monitoring attention to influence the CSR policies of their portfolio firms.
(2010) find that institutional investors are less likely to own shares of firms with improved environmental or social responsibility. (2017) find that firms with better ESG profiles tend to have investors with longer investments horizons. (2016) show that institutional investor portfolios tend to avoid stocks with CSR concerns, but portfolios are not tilted toward CSR strengths. The latter two studies consider only the environmental aspects of CSR. Chava (2014) finds a negative relation between institutional holdings and a firm's environmental concerns. (2010) show that institutional investors tend to hold fewer shares in both green firms and toxic firms than in neutral firms. Their analysis is limited to firms operating in certain industries such as alcohol, tobacco, and gambling. For example, Hong and Kacperczyk (2009) find that norm-constrained institutions, such as pension funds, are less likely to hold “sin” stocks. The majority of the existing literature has focused on how firm-level CSR influences institutional holdings. 2 Nevertheless, anecdotal evidence has shown that institutions have different attitudes toward corporate social responsibility (CSR) policies. 1 For instance, as of 2015, more than 1400 institutions representing $59 trillion assets under management have signed up to the United Nations-supported Principles for Responsible Investing (UNPRI) Initiative. To meet clients’ demand for sustainable investments, an increasing number of institutional investors have committed to integrating environmental, social, and governance (ESG) into their capital allocation process. This represents a tenfold increase since 1995 with a compound annual rate of 13.1%. According to the Forum for Sustainable and Responsible Investment (SIF, 2014), in 2014 US assets tied to SRI totaled $6.57 trillion, representing nearly 18% of the $36.8 trillion in assets under management. In the past decade, sustainable and responsible investments (SRI) have become part of mainstream investing strategies.
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