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The Drivers of Responsible Investment: The Case of European Pension Funds

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Abstract

We investigate what drives responsible investment of European pension funds. Pension funds are institutional investors who assure the income of part of the population for a long period of time. Increasingly, stakeholders hold pension funds accountable for the non-financial consequences of their investments and many funds have engaged in responsible investing. However, it appears that there is a wide difference between pension funds in this respect. We investigate what determines pension funds’ responsible investments on the basis of a survey of more than 250 pension funds in 15 European countries in 2010. We use multinomial logistic regression and find that especially legal origin of the country, ownership of the pension fund and fund size-related variables are to be associated with pension funds′ responsible investment. For fund size, we establish a curvilinear relationship; especially the smallest and largest pension funds in the sample tend to engage with responsible investing.

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Notes

  1. Of the 15 countries we investigate, pension fund assets to GDP are above 50 % in Denmark, Finland, Iceland, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom. In the other countries investigated, they are less than 10 % (OECD 2009b).

  2. Although the odds ratio is a common way to report results in (multinomial) logistic regression, the concept might be unfamiliar for some readers. Odds ratio is the ratio of two odds. The odds are retrieved by transforming the proportions under comparison (for example the English-origin and its respective neutral class) into odds (Rita and Komonen 2008). Thus, the odds of the English-origin group to be conventional pension funds are 7.9 times larger than for the respective neutral group, whereas for the French-origin it is 3.5 times larger.

  3. This percentage is calculated as follows for e.g. the German-origin: the odds for the proportion of ′PF with RI′ is (20/60)/[1 − (20/60)] = 0.50000; the odds for the respective ′neutral′ proportion is (9/60)/[1 − (9/60)] = 0.17647. Odds ratio is obtained as the ratio 0.50000/0.17647 = 2.833; 0.50000 is 100 × (2.833 − 1) = 183 % larger than 0.17647.

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Acknowledgments

We want to thank the editor and the anonymous referees for their useful comments. Riikka Sievänen acknowledges the financial support from the Foundation of Economic Education and Jenny and Antti Wihuri Foundation. We are grateful for the comments and suggestions of the participants of the UN’s PRI and MISTRA Conference in Sigtuna, Sweden, September 26–28, 2011. The usual disclaimer applies.

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  1. Department of Economics & Management, Faculty of Agriculture & Forestry, University of Helsinki, PB 27, 00014, Helsinki, Finland

    Riikka Sievänen

  2. Department of Forest Sciences, Faculty of Agriculture & Forestry, University of Helsinki, PB 27, 00014, Helsinki, Finland

    Hannu Rita

  3. Department of Economics, Econometrics & Finance, Faculty of Economics and Business, University of Groningen, PO Box 800, 9700 AV, Groningen, The Netherlands

    Bert Scholtens

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  1. Riikka Sievänen
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Sievänen, R., Rita, H. & Scholtens, B. The Drivers of Responsible Investment: The Case of European Pension Funds. J Bus Ethics 117, 137–151 (2013). https://doi.org/10.1007/s10551-012-1514-0

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