Contradictory Voting by ESG Funds

1 Pages Posted: 1 Mar 2021

See all articles by Tao Li

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate

S Lakshmi Naaraayanan

London Business School

Kunal Sachdeva

Rice University - Jesse H. Jones Graduate School of Business

Date Written: January 5, 2021

Abstract

This paper studies the conflict between ESG funds and their investors. Funds trade-off greater short-term financial performance against long-term sustainability. This conflict results in ESG funds voting against their stated pro-social mandate, even when supported by proxy advisors. Lower returns to sustainable proposals result in funds actively managing returns, while flow tests suggest that investors do not respond to contradictory voting. Simulating a correction to this voting pattern suggests an increase in passage of proposals, and greater sustainability disclosures. While investors delegate their pro-social preferences onto socially responsible funds, financial returns ultimately determine a funds' stance towards such issues.

Keywords: Mutual Funds, Voting, Corporate Governance, Socially Responsible Investment, Corporate Social Responsibility, Environmental Social and Governance

JEL Classification: G23, G34, M14

Suggested Citation

Li, Tao and Naaraayanan, S Lakshmi and Sachdeva, Kunal, Contradictory Voting by ESG Funds (January 5, 2021). Available at SSRN: https://ssrn.com/abstract=3760753 or http://dx.doi.org/10.2139/ssrn.3760753

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=7628

S Lakshmi Naaraayanan

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://www.lakshmin.com

Kunal Sachdeva (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

HOME PAGE: http://kunalsachdeva.com

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