The question is examined in a new research paper entitled ‘Who Owns (Un)Sustainable Companies? Examining Institutional Determinants of Sustainable Investing’ published in the Journal of Cleaner Production.

The paper shows that investors widely vary in their ownership of unsustainable and sustainable companies. Some investors have large allocations to sustainable ones, while others own much more of the unsustainable firms. The paper then investigates whether various SI drivers lead to higher equity ownership of sustainable companies, and lower ownership of unsustainable ones.

The findings reveal firstly that SI initiatives, like the Principles for Responsible Investment (PRI), the Institutional Investors Group on Climate Change (IIGCC) and Net Zero alliances, have little influence on their signatories’ ownership of (un)sustainable companies. Surprisingly, investors that are committed to such initiatives invest more in unsustainable companies. This raises questions about the effectiveness of SI initiatives in redirecting financing away from unsustainable firms.

Secondly, the findings suggest that external pressure can induce investors to reduce their ownership of unsustainable companies. Investors that face high normative pressure, like sovereign wealth funds that must follow their governments’ leads, or pension funds that are questioned by their beneficiaries over sustainability performance, invest less in unsustainable companies than investors with few constraints, such as hedge funds.

Thirdly, SI behavior correlates with the respective country of origin. Investors from civil law systems invest less in unsustainable companies than those from common law backgrounds. Additionally, investors from countries that are more committed to the SDGs have lower ownership of unsustainable companies. In turn, investors from nations that are less committed to the SDGs have higher ownership of sustainable companies.

Investors from countries closer to achieving the SDGs also invest more in sustainable firms, while those far from reaching these goals invest more in unsustainable companies. Furthermore, green central banking policies in a country do not impact ownership of sustainable or unsustainable companies.

This information was gleaned by creating samples of sustainable, unsustainable and neutral companies. These samples were built using multiple dimensions, including the Robeco SDG score, an assessment of asset owners’ exclusion lists, holdings in sustainable thematic funds, performance on the EU Taxonomy, and companies’ annual greenhouse gas emissions.

Data on these companies and their main equity owners was collected and regression models were developed to understand why investors invest more or less in (un)sustainable companies relative to neutral firms.

“The results encourage sustainable investing initiatives to develop accountability mechanisms that induce their signatories to invest more sustainably. They also suggest that increased normative pressure can help shift capital away from unsustainable activities,” says Jan Anton van Zanten, SDG specialist at Robeco and lead researcher for the paper.

“And they indicate that home-country contexts moderate the extent to which investors allocate to (un)sustainable companies. Overall, the findings encourage a critical examination of institutional efficacy in promoting sustainable investing.”