Engaging on corporate social responsibility : the impact of FTSE4Good on environmental management, countering bribery and mitigating climate change
This thesis examines the effect of a responsible investment index (FTSE4Good) on corporate social responsibility (CSR). In the first study I investigate the impact of the FTSE engagement reinforced by the threat of exclusion from the index on companies’ improvements in environmental management. The results show that FTSE involvement doubles the probability that a company will meet stricter environmental management requirements within the three-year period 2002 to 2005. Both the dialogue and the exclusion threat stimulate compliance but the dialogue appears to be more effective where the perceived threat of exclusion is higher. The engagement effect persists for at least five years and is positively related to low concentrated ownership and to domicile in a coordinated market economy. In the second study I examine FTSE4Good’s effect on the probability that a company will implement strong countering bribery practices within the two-year time period 2007 to 2009. The results demonstrate that the combined effect of engagement and exclusion threat is significant in promoting compliance and the two act independently. Stronger anti-bribery provisions are positively associated with companies based in liberal market economies, with better internal governance and higher reputational concerns related to ethical controversies. In the third study I investigate FTSE4Good’s impact on companies’ compliance with climate change criteria. The results show that the index is able to stimulate compliance and the dialogue appears to contribute more than the exclusion threat. I also find that the likelihood of the company adopting the required practices is negatively associated with concentrated ownership and with strong internal governance. Finally, the results offer some evidence that compliance is related to subsequent reduction in greenhouse gas emissions. These studies contribute to the understanding as to how different CSR areas are promoted or discouraged by the managers and the owners, and how the institutional environment influences this. The results are consistent with engagement via a responsible investment index being an effective means of large-scale collective monitoring by institutional investors. The findings are also relevant for policy makers who wish to promote active ownership.