Three questions about engagement and exclusion in responsible investment

Abstract

There is a move towards more use of engagement strategies in responsible investment. This change in strategies is motivated by a number of claims about the effectiveness of engagement versus exclusion of companies from the investment universe (the set of investment objects available to an investor). This paper examines the basis for three central claims: (1) That engagement, in contrast to exclusion, does not reduce the investment universe; (2) That exclusion reduces an investor's influence on a company; and (3) That engagement with exclusion is necessarily a more effective means of influencing companies than pure exclusion. All three claims are argued to be open to challenge. It is possible that the move towards more engagement reflects bureaucratic incentives and political considerations among institutional investors, rather than arguments about the effectiveness and efficiency of engagement.

A systematic literature review of socially responsible investment and environmental social governance metrics

“…SRI institutional investors are becoming more interested in shareholder activism, even though there is inconclusive empirical support for the approach. Kolstad () suggests that this may be due to shareholder activism triggered by political and bureaucratic motives to appease stakeholder pressure, rather than by effectiveness and efficiency motives.…”

The appearance standard: Criteria and remedies for when a mere appearance of unethical behavior is morally unacceptable

“…The idea behind the appearance standard is therefore not that actual unethical behavior is acceptable for as long as others are not aware of it (cf. Kolstad, ). This would be hypocritical, as Grant () argues, or deceptive, as Provis () claims.…”

Are environmental social governance equity indices a better choice for investors? An Asian perspective

“…Under this view, SR investors can earn higher returns with lower risk, even if they appear to be under‐diversified. Kolstad () suggests that a more focused SR portfolio can enhance shareholder engagement with the companies in which they invest. The liquidity, size of the market, and the expertise of the SR investors in selecting the SR assets may also reduce the potential underperformance of SRI (Merton ; Diltz a).…”