Can an influential and responsible investor indeed be influential through responsible investments? Evidence from a $1 trillion fund

Abstract

Via a case study of Norway’s sovereign wealth fund (GPFG), the world’s largest stockowner, we find that such a high-profile fund can immediately influence market prices through its ESG announcements. After assessing that the product or conduct of a portfolio constituent is in serious contravention of its ethical guidelines, the GPFG can divest from that firm or place it on an observation list and make after-the-fact public announcements. For both cases, we empirically investigate market reactions via the pricing and trading volume of the affected firms’ stocks. Our results show a robust and significant average abnormal return of −0.31% for the firms on the announcement date. To disentangle the price effects, we condition on the rationale of each announcement and demonstrate that it indeed plays a role. Specifically, firms announced for their conduct face a larger magnitude of price reaction than those announced for their product. We, however, find no evidence of any effect of the announcements on trading volume. Nevertheless, we find some evidence suggesting that higher trading volume and more recent announcements are associated with more negative abnormal returns.