What influences an asset owner to sign the Principles for Responsible Investment?
From a simple idea to unite asset owners in their quest for responsible investment (RI) at its launch in April 2006, the United Nations supported Principles for Responsible Investment (PRI) have grown in just one decade into an initiative with more than 1500 fee-paying signatories.
Jointly, the PRI’s signatories hold assets worth more than $80 trillion, making it one of the more prevalent not-for-profit organisations worldwide. Furthermore, the PRI’s ambitious mission to transform the financial system at large into a more sustainable one makes it a worthwhile subject of inquiry from an institutional perspective. The authors undertake an empirical investigation of the adoption of the PRI by asset owners during five crucial years of the association’s emergence: 2007–2011.
Following a tripartite view of institutional theory proposed by Scott (Institutions and organisations. Foundations for organisational science, A Sage Publication Series, London, 1995), the authors explore if regulative, normative, and cultural–cognitive factors influence an asset owner’s decision to subscribe to the PRI. Applying both parametric and non-parametric survival analysis, the authors find that asset owners are indeed significantly affected by normative, cultural–cognitive, and regulative aspects. In particular, (i) public service employee and labour union pension funds (ii) from social backgrounds more culturally aligned with values represented by the RI movement (iii) with historically more voluntary legislation on environmental, social, and governance (ESG) issues are most likely to sign the PRI.
In contrast, institutional environments with a higher number of pre-existing mandatory ESG regulation decrease the likelihood of signing the PRI. The results indicate that normative and cultural–cognitive factors were crucial contributors to the PRI’s growth. With respect to the regulative environments, the results imply that some asset owners may use the PRI as a collective industry initiative to substitute for mandatory legislation. Conversely, a high level of historical mandatory legislation may constrain organisational resources that could otherwise be dedicated to voluntary initiatives such as PRI. The findings are robust to relevant controls and econometric concerns.
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Andreas G. F. Hoepner, Arleta A. A. Majoch & Xiao Y. Zhou. 2021. Does an Asset Owner’s Institutional Setting Influence Its Decision to Sign the Principles for Responsible Investment?