On the Price of Morals in Markets: An Empirical Study of the Swedish AP-Funds and the Norwegian Government Pension Fund

Abstract

This study empirically analyses the exclusion of companies from investors' investment universe due to a company's business model (sector-based exclusion) or due to a company's violations of international norms (normbased exclusion). We conduct a time-series analysis of the performance implications of the exclusion decisions of two leading Nordic investors, Norway's Government Pension Fund-Global (GPFG) and Sweden's AP-funds. We find that their portfolios of excluded companies do not generate an abnormal return relative to the funds' benchmark index. While the exclusion portfolios show higher risk than the respective benchmark, this difference is only statistically significant for the case of GPFG. These findings suggest that the exclusion of the companies generally does not harm funds' performance. We interpret these findings as indicative that with exclusionary screening, as practiced by the sample funds, asset owners can meet the ethical objectives of their beneficiaries without compromising financial returns.

State Pension Funds and Corporate Social Responsibility: Do Beneficiaries’ Political Values Influence Funds’ Investment Decisions?

“…For instance, how should funds define the "best interests" of beneficiaries and whose interests should dominate in case that beneficiaries differ in their attitudes toward environmental and social issues. These questions suggest interesting avenues for future research in the area of business ethics and are particularly important for public pension funds administered as defined benefit plans since plan participants do not have an option to exit the fund in case that they are dissatisfied with the funds' investment approach (Clark 2004;Sandberg et al 2014;Hoepner and Schopohl 2018). Thus, we hope that our study will contribute to the ongoing public debate about a re-interpretation of fiduciary duty in light of growing environmental and social concerns, by shedding light on the moral dimension of beneficiaries' interests.…”

“…While the importance of political values in investment decisions has previously been documented for individual mutual fund and hedge fund managers (Hong and Kostovetsky 2012) and in corporate finance for CEOs, and founders and directors (Di Giuli and Kostovetsky 2014), we are the first to analyse how political values and norms play a role in US public pension funds whose institutional characteristics differ considerably from the previously investigated actors. As such our study contributes to a growing body of research in business ethics on the role of morals in markets and the foundations of the ethicalisation of investment practices through responsible investment strategies (see Cox and Wicks 2011;Hoepner and Schopohl 2018) by analysing one channel through which beneficiaries' moral values can affect public pension funds' investment decisions.…”

“…Hence, our findings support arguments by Sethi (2005) that public pension funds' responsible investment practices are aligned with their fiduciary duty, while they do not back concerns expressed by opponents of responsible investment that "social investing subverts a fiduciary's common-law duty of undivided loyalty" and serves as a "vehicle for political mischief at the expense of the interests of taxpayers" (Rounds 2005, p. 76). As such, we contribute to a discussion in the business ethics literature that argues for a broadening of the interpretation of fiduciary duties and an expansion of the understanding of beneficiaries' interests beyond purely financial ones to entail beneficiaries' values and norms (see Richardson 2007Richardson , 2009Richardson , 2011Jansson et al 2014;Hoepner and Schopohl 2018).…”

Corporate reputation and firms' performance: Evidence from Spain

“…Most of the empirical literature on corporate reputation and stock market returns (Eckert & Gatzert, 2017;Hoepner & Schopohl, 2016) use a similar methodology, in particular the same asset valuation model or capital asset pricing model (CAPM). This model attempts to explain stock returns by the sum of the risk-free rate and premium risk.…”

Does the Asset Allocation Policy Affect the Performance of Climate-Themed Funds? Empirical Evidence from the Scandinavian Mutual Funds Market

“…Moreover, we constructed monthly continuously compounded returns for equal-weighted and value-weighted portfolios to estimate group performance. The equal-weighted portfolio return is expressed in the following way [51]:…”