Finsif on tukenut vuosittain vastuullisen sijoittamisen tutkimusta stipendein
Finsif on jakanut stipendejä vastuullisesta sijoittamisesta kiinnostuneille opiskelijoille ja tutkijoille. Stipendien jaon tarkoituksena on ollut edistää vastuullisen sijoittamisen tutkimustyötä.
ESG ratings guide capital, yet the same company can receive very different scores from different providers. We examine whether foreign institutional investors help on two fronts in the US market, lifting firms’ ESG ratings and reducing the disagreement between agencies. We also ask which investors matter most by distinguishing long-term from short-term owners and linking effects to the social norms in investors’ home countries.
The studied sample covers 1,726 US firms across 10,829 firm-year observations from 2013 to 2023. ESG performance comes from Refinitiv and MSCI, the two most used agencies. Rating dispersion is the absolute difference between the two scores. We exclude utilities and financial firms to avoid regulation-driven biases.
To address endogeneity, we implement an instrumental variable, inclusions and deletions in the MSCI ACWI index, which move foreign investor allocations because many institutions are benchmarked to this index. This creates an outside shift in foreign ownership that is not driven by the company’s ESG actions.
The results show that higher foreign institutional ownership is associated with higher ESG ratings and a smaller gap between MSCI and Refinitiv. These patterns hold in fixed effects OLS and when foreign ownership is instrumented with ACWI changes, which supports a causal interpretation. Instrumented foreign ownership relates positively to ESG ratings and negatively to dispersion.
The effects are not uniform. Long horizon owners, such as pension funds, are the most effective at lifting ratings and narrowing gaps. Investors from countries with stronger sustainability related social norms also have a stronger association with both outcomes. At the ESG-score component level, improvements are most pronounced in the Environmental pillar.
A notable contribution of this study is its focus on ESG rating dispersion, a growing concern among investors and stakeholders that has been the subject of very limited academic research. Disparities in ESG ratings across agencies can undermine investor trust and distort market perceptions of firms’ sustainability performance.
Our study demonstrates that higher foreign institutional ownership is associated with a significant reduction in these discrepancies, suggesting foreign institutions, especially long-term investors and those from high social-norm countries, play an active role as external monitors, enhancing the quality of reporting. This finding is particularly relevant in the current landscape of increased interest in sustainable investing, where inconsistencies in ESG evaluations have become a critical barrier to the reliability of sustainable investment practices.
Miro Lehmusmies & Topi Pöyhönen
Aalto Yliopisto
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