Institutional investors have limited resources dedicated to engagement activities, yet, in many cases they hold thousands of stocks in their portfolios. We exploit the introduction of the tiering classification system by the Financial Reporting Council (FRC) in 2016 for signatories reporting under the UK Stewardship Code, the first and still only country to do so.
Using various research designs, we show that the introduction of this tiering system is associated with a future increase in overall engagement activities, and with portfolio firms’ ESG performances, for those investors given a “Tier 1” classification by the FRC. We attribute these findings to Tier 1 investors using the FRC classification system to burnish their reputations as being active and engaged monitors.
Prior research has documented a carbon premium in realized returns, which has been assumed to proxy for expected returns and thus the cost of capital. We...
In May 2021, Engine No. 1, an investment fund, was lauded by the responsible investment community for successfully placing three dissident independent...