The paper studies a natural experiment in responsible investment conducted by the Japanese Government Pension Investment Fund (GPIF). In 2018 GPIF gave its largest passive manager a remunerated mandate to engage with portfolio companies to improve environmental, social and governance performance.
The fund adopted best-in-class indexes, rewarding companies with high ESG scores with additional equity investment. Using private data and difference-in-differences analysis we show that engagement by the asset manager has improved scores. In an event study, we find that the conditional portfolio tilt significantly impacts share prices. We also provide evidence that ESG scores for the Japanese stock market increased significantly more during the treatment period than most those of companies in other countries.
A common argument against divestment is that it discards voting power and has a small effect on stock prices. We argue that divestment is a statement of...