Rethinking Finance: Responsible Investment in the European Asset Management Industry (A Dissertation)

Abstract

This dissertation explores the notion of Rethinking Finance, in the form of questioning previously established beliefs and models. In particular, it examines the current evolution of the European Asset Management industry as increasing institutional pressures push organizations to change their business models and integrate sustainability into their traditional investment practices. This is manifested in the phenomenon of Responsible Investment (RI) – any type of consideration of Environmental, Social, Governance and Controversial Business Involvement issues within the investment process. The objective of this dissertation is two-fold: first, to examine the mechanisms underlying institutional change within the context of field-level institutional complexity and within a situation of transition, wherein organizations are embedded in a dominant logic while subject to pressures from a new, conflicting logic that does not bring with it theorized definitions or models of success and second, to provide an illustration of whether and how this rethinking is manifested within financial markets. This dissertation is composed of three standalone papers that address the aforementioned research objectives. Chapter 2. Institutional Complexity in a Transition Field: Responsible Investment in the European Asset Management Industry asks the question, how do organizations experience and respond to institutional complexity in a transition field? Through a qualitative, abductive, exploratory study, we find that in a situation of transition, organizations make sense of institutional complexity through logic assimilation, which has two core mechanisms, logic theorization and logic-archetype elaboration. This chapter also highlights the existence of an enabling organization, which facilitates logic assimilation. In Chapter 3. Responsible Investments: the Assimilation of Sustainability-related Sources of Risk, I investigate a dataset of European Socially Responsible Investment (SRI) mutual funds, providing evidence that (1) sustainability information and (2) moral preferences of clients have a significant relationship with financial risk and fund flow volatility, respectively, in substantive forms of RI. In Chapter 4. Rethinking Finance: Sustainability Governance in Responsible Investment, we investigate a similar dataset, focusing on sustainability governance practices (sustainability disclosure, sustainability activism, and sustainability research). We show in a first attempt that governance practices related to sustainability issues – often overlooked in the literatures – are value-relevant. These latter two chapters illustrate primary workings of how logic assimilation is manifested within financial markets. This dissertation incorporates the notions of conflicting logics, institutional embeddedness, and logic assimilation within previous work in the Social Studies of Finance, harmonizing complementary views from Institutional theory. It further goes beyond previous ethnographic and descriptive work and illustrates how such a reconceptualization of previously well-established beliefs perform markets and become manifested in financial models, thus providing an important empirical linkage between the experience of institutional complexity and actual practice change in financial markets.