Stewardship Code for a Better Engagement: ESG Evidence

When: 14 Dec 2020, 14:15-15:30
Where: Zoom
Speaker: Massimiliano Bonacchi, Giovanni Strampelli

To enter the virtual seminar room, please use the following login credentials:

Meeting ID: 954 5783 1690
Password: 157692
Zoom URL:

We study the effectiveness of institutional investor engagement on the ESG performance of a sample of UK firms listed in the FTSE 100 Index. To measure the quality of engagement we exploit the Tiering exercise introduced by the FRC in 2016, aimed at assessing signatories’ reporting against the Stewardship Code. Using a difference-in-difference research design we show that the introduction of the Stewardship code and the signatories’ Tiering contribute to the increase of ESG performance in the investee companies. Furthermore, our results suggest that high quality engagement investors (Tier 1) are more effective than no tiering investors in improving ESG performance overall. These results validate the assumption that good disclosure is a proxy of engagement quality. When we split the ESG scores in environmental, social and governance scores, the results show mixed evidence, where the environmental and social scores of the firms included in our sample are not associated with the tiering classification. Moreover, we show that tiering system is a better proxy of the quality of engagement than having signed the United Nations Principles for Responsible Investment (PRI). Finally, contrary to the stream of literature based on the view that passive investors (i.e. index managers) are passive owners, we find that the three world’s leading passive asset managers (BlackRock, Vanguard and State Street, also known as the Big Three) contribute over and above the other Tier 1 investors. Our results contribute to the growing literature on the effectiveness of institutional investor monitoring behavior and the role of stewardship codes and, from the regulatory perspective, validate the assumption that there is strong correlation between stewardship-related disclosure and the quality of engagement and suggest that disclosure-based reputational incentives are effective in influencing institutional investors preferences and promoting the application of best stewardship practices by them.