A Motivation Puzzle: Can Investors Change Corproate Behavior by Conforming to ESG Pressures?

Abstract

The financial crisis has exposed a behavioral paradox: although asset managers are putting significant effort into meeting institutional pressures to demonstrate transparency and responsible behavior, their actual investment behaviors seem to remain inconsistent with responsible ownership. We seek to understand asset managers’ motivations to use externally defined environment, social, and governance (ESG) information to engage in sustainable investment. We draw on insights from the sensemaking literature, as well as institutional, behavioral, and cognitive theories to shed new light on asset managers’ motivations to demonstrate conformance with ESG criteria. The more asset managers demonstrate conformance, the less likely they are to make an effort to integrate sustainability and long-term, return-making concerns in their investment behaviors. As a result of the organization’s decoupling strategy, asset managers who are obliged to justify responsible behavior tend to have a limited sense of responsibility for encouraging long-term changes in corporate behavior. We argue that calls for greater transparency in investment decisions under the guise of demonstrating conformance to ESG information requirements will not lead to more sustainable investment behavior.