Institutional Investors and Environmental, Social and Governance: A Mixed Methods Study
Creators: name: McGrath, Vincent Michael
Publisher: name: Macquarie University
Year: 2025
Subjects: classificationCode: 350202
subject: Finance

description: ESG investing refers to the incorporation of environmental, social and governance information into the investment process and its popularity has grown considerably in recent decades. This thesis examines institutional investors' relationship with ESG investing using a mixed methods approach.The thesis contains three studies looking at different facets of how institutional investors' incorporate ESG factors into their investment process. An examination of how institutional investors' incorporate ESG is important given the size and influence of institutional investors in global financial markets. This thesis begins in Chapter 1 with an introduction that offers a brief background on ESG investing, its history and how it differs from previous forms of ethical investing. Chapter 1 also describes the importance of institutional investors, why it is important to understand their preferences and behaviour and lays out the motivation for carrying out the thesis. The Chapter iii then describes the structure of the thesis. The Chapter ends by highlighting the thesis’s academic and practical contributions.Chapter 2 contains the first study in the thesis. It uses an objective and replicable methodology to carry out a systematic literature review of institutional investors' preferences towards ESG. The systematic literature review reveals five key research themes: corporate social responsibility—preferences and outcomes; activism—mechanisms and outcomes; effective monitoring; governance preferences and investing decisions; and incentives to monitor. Moreover, the research identifies emerging research trends and future research directions. In doing so the chapter contributes to the literature by offering a comprehensive and timely synthesis of the accumulated knowledge in this area.In Chapter 3 a mixed methods approach is used to study Australian institutional investors' use of ESG information. The study which draws on the economic and institutional forces behind institutional investors' use of ESG information incorporates an online survey and semi-structured interviews with 26 Australian-based institutional investors. A major motivation for this study is the lack of qualitative studies in this area, highlighted during Chapter 2’s systematic literature review. The study reveals that while economic forces are important, normative, and regulative forces also influence the use of ESG information. The study also highlights times when differing forces conflict including around fiduciary responsibilities, rapidly changing regulative and societal expectations, greenwashing, and market efficiency. Finally, the study shows the importance of engagement to Australian institutional investors.Chapter 4 investigates institutional investors' preferences towards corporate culture. This gap in the literature was identified in Chapter 2’s systematic literature review. The study which is based on the Competing Values Framework (CVF) of Quinn and Rohrbaugh (1981) uses a text analysis of firms 10-ks to measure firms’ corporate culture along each of the CVF’s four corporate cultures. The study's main hypotheses are that dedicated institutional investors should prefer the iv lower risk and longer-term internal cultures of collaborate and control while transient institutional investors should prefer the riskier and shorter-term focused external cultures of create and compete. Although the chapter finds only marginal evidence that institutional investors consider corporate culture, nonetheless the study contributes to the literature by broadening our understanding of institutional investors preferences.The thesis concludes in Chapter 5 with the conclusion that summarises the study's main results, and its contributions to the literature. The Chapter also outlines the thesis's major limitations and offers some suggestions for future research.