Closing the SDG finance gap: does regulatory transparency for institutional investors increase the sustainability of their portfolio allocations?

Abstract

This research assesses the ability of Environmental, Social and Governance based regulatory transparency for institutional investor to cause an improvement in their sustainability performance. Sustainability performance has been operationalized and quantified at the portfolio-level, thereby providing a valid and precise measure of institutional investor sustainability performance. Consecutively a Difference-in-Difference research design was employed to make causal inferences on the treatment effect of transparency regulation on the sustainability performance of French domiciled pension and insurance funds. Scientific literature on regulatory drivers of the sustainability performance of institutional investors is severely limited and to my knowledge there is no research that evaluates the effectiveness of these regulatory drivers by using the portfolio-level sustainability performance as the outcome variable. The results indicate that ESG transparency regulation is a weak instrument to promote institutional investor sustainability performance.