Shareholders exert significant influence on the social and environmental behavior of U.S. corporations. Shareholders vote on social and environmental resolutions, which I refer to as ‘social responsibility resolutions,’ that are put forward at corporations. The success or failure of social responsibility resolutions influences the social and environmental behavior of those corporations. The largest shareholders are institutional investors – mutual funds, investment advisers and pension funds. When they vote on social responsibility resolutions, they do so as fiduciaries for their own investors.  

This article considers two questions:

  • Do the votes of institutions on social responsibility resolutions follow the interests of their own investors?
  • And do the votes of institutions on social responsibility resolutions follow the preferences of their own investors?

 The article puts forward evidence that they do not, and considers whether this is a problem, and how it could be addressed. See for instance the attached overview of how the mutual funds voted on whether a company should perform GHG disclosures.

The stakes are high: if institutional investors voted on social responsibility proposals as their own investors preferred, corporate behavior on social and environmental matters might be much closer to what investors, and society, would prefer.

By: Scott Hirst, Harvard Law School

See the full SSRN article here