Do Environmental Policy Instruments Influence Fiduciaries' Decisions?

Abstract

This paper examines the import for fiduciary investors (pension funds, insurance companies, and mutual funds in OECD countries) of companies' environmental performance levels in light of existing and nascent energy-usage and environmental management policies. The study is based on an experiment using a sample of fiduciaries located mainly in Europe, North America, and Australia. Subjects are allocated to one of two groups: one group invests with reference to environmental considerations, while the other tracks a conventional equities index. Responding participants indicate the frequency with which they use nominated sources of information and rate the importance of nominated types of information in their decisions concerning the portfolio. The results suggest that the wider population of fiduciaries considers existing policy measures to be of limited value, yet, on liquidity grounds, might be prepared to take environmental considerations into account in the portfolio construction process. Another contribution of this paper is its framing and consolidating of literature on energy and environmental management policy, environmental investing, and decision psychology.