The four refereed journal articles and one government research report that form the core of this submission for a PhD represent my work in the subject area of institutional investment and responsible investing. The research, as a whole, has two major areas of focus. One area of focus is the behaviour of institutional investors. The research first examines different types of institutional investor and their demand for the characteristics of social and environmental performance within their equity portfolios. The research next examines the fund managers that institutional investors appoint to manage their assets. Attention is paid to the different locations of fund management as well as the features that determine the degree of competition between fund managers. The research examines these different fund management settings and the demand for the characteristics of social and environmental performance within their equity portfolios. A further issue investigated is whether different types of institutional investor pay greater attention to responsible investment when investing domestically than overseas. The second area of focus is the study of responsible investment based on grounded research methods. The main contributions are an assessment of how fund managers perceive that responsible investment achieves financial performance, the communication between fund managers and corporate directors for the purpose of responsible investment, the use of information and staff within responsible investment, and costs and charges associated with responsible investment. Both areas have contributed to policy debates and development, and have prompted other researchers to publish and undertake fieldwork. The commentary, which forms Part A of this submission, illustrates these features by reference to the five publications that are reproduced in their entirety in part B.

The aim of this thesis is to test whether incorporating principles of responsible investment will have an impact on financial performance when investing in emerging markets. A developed market is included to bring up potential structural differences between emerging and developed markets. Principles of responsible investment suggested by the UN concerns environmental, social, and governance (ESG) issues. The financial performance of highly rated ESG portfolios was evaluated by using the capital asset pricing model (CAPM) and the Fama French 3-factor model. Alpha has been used as the performance measurement. Results reveal that incorporating principles of responsible investment by using a best-in-class approach generates statistically significant and positive alphas in emerging markets, while the developed market of the U.S generates an insignificant alpha.

As evidenced by the rapid increase of United Nations Principles for Responsible Investment (UNPRI) signatories, the integration of environmental, social and governance indicators (ESG) in investment decisions has become a popular topic. However, despite its popularity, there is no consensus among practitioners on what this actually means and how it should be tackled. The obvious lack of standardization is reflected by divergent ESG rating procedures, incomparable company sustainability reports and the widely differing strategies by asset managers and asset owners. This is a substantial hurdle as it can cause misalignment of perspectives within the investment chain, which keeps ESG from being pushed up the agenda. There appear to be substantial struggles on the road to ESG integration and several questions arise; are the perspectives on ESG integration aligned between companies, asset managers and asset owners? Where do possible obstacles on the road to responsible investment reside, what are they and how can they be overcome? My main findings are four-fold. First, I find ESG reporting fatigue among companies due to the sheer number of ESG ratings and rankings. Companies should not let this overwhelm them and be clear that they only respond to a handful. Investors should only use it as a starting point and ensure that it does not become a substitute for a real conversation with their portfolio companies about ESG. This interest is necessary for top management to sign off on sustainability initiatives. Second, I find that asset owners are not as convinced of the business case of ESG as asset managers and companies are. This is often reflected in the way they select, monitor and review their asset managers. Third, the lack of in-depth ESG due diligence by asset owners likely lets asset managers get away with decoupling statements from actions. More specifically, it appears that ESG and finance are often still separated. Lastly, companies are more reactive than proactive when it comes to ESG efforts. The main driver for them to embark on their ESG journey is the consumer. We can therefore play a significant role in creating a more sustainable world, either as the beneficiary or the consumer.

Traditionally, it has been argued that companies are only responsible towards their shareholders, to maximize the profits. But lately it has changed into another way of responsibilty. It has become of great importance to demonstrate sustainable long-term values for stakeholders to identify with. This thesis aims to clarify the banks’ definition of responsible investment and what criteria they assume when talking about such kind of investments. Furthermore, the thesis intends to examine how the banks in their role as an agent can contribute so their customers can achieve responsible investments. The issues dealt with are: What criterias must a responsible investment meet according to the Swedish banks? and How can the Swedish banks contribute so their clients' investments falls under what is defined as responsible investment?The conclusions of this study show that to conduct a dialogue with companies that violate norms and principles is considered more responsible, than to exclude companies and divest holding. A responsible investment is thus an investment on which banks are active owners and influence companies through dialogues. / Traditionellt sett har det hävdats att företag endast har ett ansvar gentemot aktieägarna. I takt med globaliseringen och en ökad medvetenhet om hur företag påverkar omvärlden, blir trycket allt större på att organisationer och företag ska ta ett ansvar bortom årets resultat. Påtryckningarna kommer främst från företagens intressenter och utgörs av deras krav på företagets verksamhet. För att ett företag ska kunna överleva i en föränderlig omvärld är det av stor vikt att företaget kan uppvisa hållbara värderingar som intressenterna långsiktigt kan identifiera sig med. Företagsledningen måste därför acceptera att det finns andra mål än vinstmaximering och vara redo att arbeta med flera parallella målsättningar av olika slag. Det är genom detta arbete som företaget måste hitta vägar att möta dessa krav och på så vis axla sitt ansvar gentemot omvärlden. SRI, Socially Responsible Investment, går i linje med att företagen ska förmå att ta sitt ansvar. SRI medför att aktieägarna genom sina investeringar ges en möjlighet att utöva påtryckningar på företagen, att integrera CSR-arbetet i sin verksamhet, samtidigt som de får ekonomisk avkastning. På en internationell nivå är FN:s principer för ansvarsfulla investeringar, UN’s Principles for Responsible Investment (PRI), kanske det mest betydelsefulla initiativet för att kombinera ett ansvarsfullt agerande med ekonomisk avkastning. Principerna förser investerare med ett ramverk för att ställa krav på företagen att implementera ett arbete avseende miljö- och socialt ansvar, samt frågor som rör bolagsstyrning i företagens verksamheter. Denna uppsats syftar till att bringa klarhet i vad som, enligt de ledande bankerna i Sverige, avses med ansvarsfulla investeringar och vilka kriterier bankerna utgår från när de talar om den här typen av investering. Vidare studeras hur bankerna i sin roll som agenter kan verka för att kundernas placeringar blir ansvarsfulla investeringar. Frågeställningarna som uppsatsen behandlar lyder: Vilka kriterier utgår Sveriges ledande banker från när de definierar en ansvarsfull investering? samt Hur kan Sveriges ledande banker verka för att deras kunders placeringar faller inom ramen för ansvarsfulla investeringar? Studien visar att de ledande bankerna i Sverige följer Principles for Responsible Investments när de talas om ansvarsfulla investeringar. Respondenterna och bankerna har genomgående definierat en ansvarsfull investering som en investering där ägaren är aktiv i sin roll och påverkar bolagen att leva upp till ESG-kriterierna. Bankerna är i sin roll som agenter av stor betydelse för dialogen med bolagen för att kundernas placeringar faller inom ramen för ansvarsfulla investeringar. Att föra en dialog med bolag som bryter mot normer och principer anses mer ansvarsfullt än att exkludera bolagen och avyttra innehavet.

The study critically reviews the application of the Sharia investment screening process, from both Sharia and practical perspectives. In practice, there appears to be inconsistencies in the Sharia investment screening criteria among Islamic investment institutions, especially in terms of the tolerance level, as well as the changing of the Sharia rules. This certainly affects the confidence in the Sharia screening criteria standards, which might adversely affect the Islamic mutual funds industry. The non-income generating aspects, such as social and environmental concerns, are not incorporated in the contemporary Islamic investment screening process. This seems to be rather paradoxical, since it contradicts the Sharia-embedded ethical values of fairness, justice and equity. The thesis contends that external audits regarding the implementation of Sharia rules should be adopted to ensure the compliance of the investment with Sharia guidelines. Furthermore, it is desirable for Sharia boards to adopt corporate governance practice and take proactive roles, especially in Muslim countries, in order to influence companies to adopt Sharia-compliant investment practices. The tolerance levels of conventional finance activities of companies in Muslim countries should be re-evaluated and lowered in the Islamic investment screening criteria. This is partly due to the popularity and wide availability of Islamic banking and alternative Sharia instruments to interest-based finance, coupled with the fact that Muslim shareholders form the majority and hence, can vote to influence companies to adopt Sharia-compliant financing modes. In addition, the study provides empirical evidence that the Sharia screening process does not seem to have an adverse impact on either the absolute or the risk-adjusted performance of Islamic equity mutual funds in Saudi Arabia, compared to their conventional counterpart equity mutual funds and also compared to their market benchmarks. This is regardless of the geographical investment focus subgroup examined and the market benchmark used (whether Islamic or conventional). Furthermore, the systematic risk analysis shows that in most cases Islamic equity mutual funds in Saudi Arabia tend to be significantly less exposed to market risk compared to their conventional counterpart equity mutual funds, and compared to their conventional market benchmarks. Thus, the assumption that Sharia investment constraints lead to inferior performance and riskier investment portfolios because of the relatively limited investment universe seems to be rejected. This implies that Muslim investors in Saudi Arabia can choose Islamic investments that are consistent with their beliefs without being forced to either sacrifice performance or expose themselves to higher risk. The investment style analysis also shows that the Sharia screening process does not seem to influence Islamic equity mutual funds in Saudi Arabia towards small or growth companies compared to their conventional counterparts of similar geographical investment focus. Moreover, the study provides empirical evidence that the performance difference between Islamic and conventional socially responsible indices is insignificant despite applying different sets of screening criteria. However, Islamic indices tend to be associated with relatively lower systematic risk compared to their conventional socially responsible counterparts. Therefore, Islamic investment portfolios can be marketed to socially responsible investors who share similar beliefs in terms of excluding certain industries such as tobacco, alcohol, pornography, defense, etc., in spite of no financial filters being used by conventional socially responsible investors. This finding is especially appealing in Muslim countries where there are usually no mutual funds categorized as socially responsible, but rather Islamic. Moreover, the study also provides empirical evidence that incorporating conventional sustainability criteria into the traditional Sharia screening process does not lead to inferior performance or higher exposure to systematic risk. The results indicate that regardless of the restriction used - whether Islamic, socially responsible or Islamic socially responsible - restricted investment portfolios do not seem to be associated with inferior performance or higher exposure to risk. This finding opens the door for Sharia scholars and Muslim investors to reconsider broader social and environmental aspects as part of the Sharia investment screening process. With regards to investment style, Islamic and Islamic socially responsible indices seem to be skewed towards growth cap as compared to their conventional and conventional socially responsible indices, while Islamic socially responsible also leans towards a large cap. This implies that despite the performance similarity between, Islamic, conventional and conventional socially responsible indices, the returns driver of each type of investment tends to be different.

Identifying factors that affect the flow of mutual fund capital and betweenmutualfund types hasthe potential, among others,to relief fund management and investors from unnecessary administrative costs. This study investigated the role media reported weather shocks have on socially responsible and conventional mutual trust funds’capital flow.The study also has compared the magnitude of influence media reported weather shocks has on capital flow between socially responsible-and convectional mutualtrustfunds.It gives conclusionafter empirically studying all accessible socially responsible mutual trust fundswith relevant accessible financial data, originated, and actively traded in the Swedish financial market with the Swedish currency (Kronor) as well as taking conventional mutual trustfundswith similar maturity. And, the study result shows that media reported weather shocks has statistically significant role in the flow of capital, on bothsocially responsible-and conventional mutual funds in Sweden. It also shows that there is no significant difference in the role media reported weather shocks play between the two fundtypes. The result is concurrent with Hirshleifer & Shumway (2003)’s study which indicate that weather affecting investors mood and behavior. The result is interesting as it implicates to the psychological and emotional factorsplaying a significant role in affecting the flow of investment capital in general, in contrast to the rational economic behavior characterized by fund return and risk performance.

Today, there is no uniform definition of what an ethical fund is. Fund management companies choose themselves what they believe is ethical and not. The lack of the definition makes it difficult for consumers to understand why these funds are special compared to other funds. The purpose of this study is to examine three Swedish companies; KPA Pension, Swedbank Robur and Folksam, to obtain a clearer picture of the concept ethical funds and its definition. The study describes each company's view of Ethics and how they may affect other companies to work for a more sustainable world. The paper will also discuss how fund companies make a good balance between ethics and profit. The study is based on interviews with people involved in Corporate Social Responsibility and Responsible Investments. The results suggest that companies themselves have difficulties to define what an ethical fund is, but they all believe they have a good chance to influence the various companies. Research on ethical funds and their returns have shown different results. This makes it difficult to determine if ethics and returns go hand in hand or if ethical funds instead leads to a lower risk, with a smaller yield. / I dagsläget finns det ingen enhetlig definition för vad en etisk fond är. Fondbolagen väljer själva vad de anser är etiskt och inte. Den uteblivna definitionen gör det svårt för konsumenter att förstå vad som utmärker just de här fonderna, gentemot andra. Syftet med den här studien är att undersöka tre svenska företag, KPA Pension, Swedbank Robur och Folksam, för att på så sätt få en klarare bild av etiska fonder och dess definition. Studien beskriver vad de olika företagen har för syn på etik och hur de kan påverka de företag de är delägare i. Uppsatsen kommer även att diskutera hur fondbolagen kan få en bra balans mellan etik och avkastning. Studien bygger på intervjuer med personer som arbetar med Corporate Social Responsibility och ansvarsfulla investeringar. Resultatet tyder på att företagen själva har svårt att definiera vad en etisk fond är, men att de alla anser att de har en bra chans att påverka de olika företagen. Forskningen angående etiska fonder och dess avkastning har visat olika resultat. Vilket gör det svårt att bestämma om etik och avkastning går hand i hand eller om etiska fonder istället medför en mindre risk, med en mindre avkastning.

The Principles for Responsible Investment (PRI) is a voluntary investor-led initiative, backed by the United Nations. Together, the six principles are meant to provide a ‘best practice’ code of conduct for institutional investors seeking to adopt responsible investment practices with a secondary goal of contributing to improved corporate performance on environmental, social and governance (ESG) issues. Launched in 2006, the PRI has grown to be the single largest global investor initiative with over 700 signatory financial institutions representing assets under management in excess of $US20 trillion. Contributing to the broader literature on plausible explanations for why firms participate in voluntary initiatives, the thesis is primarily concerned with the question of what has motivated institutional investors to create and publicly commit to the PRI. A review of the broader trends behind the growth of responsible investment and the emergence of the PRI indicates the dominant utilitarian, cost-benefit logic is not wholly persuasive in understanding investor motivations. The research findings indicate that decisions to integrate ESG issues and publicly commit to adopting the PRI should be primarily viewed as a response to formal pressures by external stakeholders and actors in an investor’s institutional environment. Regulatory and stakeholder influences in the form of NGO advocacy campaigns have established normative standards directed towards the conduct of investors. As public opinion has shifted to put greater emphasis on sustainable development, the image and reputation of a pension scheme in relation to these trends have come under increasing scrutiny such that being perceived as a ‘responsible’ investor – sometimes even in the absence of a direct market rationale – has become a central driver behind the growth of responsible investment. The decision to adopt the PRI and establish beyond-compliance commitments to integrate ESG issues into investment decision-making should principally be seen as embedded in broader reputational risk management strategies. These findings support complex market rationalism explanations for firm participation in voluntary initiatives which suggest that firms commit to such principles or codes of conduct as a means of assuring stakeholders that their concerns are being internalized into corporate practices. A secondary focus of the thesis is to examine signatory implementation to-date, assessing the adequacy and effectiveness of the voluntary measure for the promotion of more socially-responsible and environmentally-sustainable investments. While substantial progress has been shown by a small group of PRI signatories, it remains unclear whether the PRI has generated significant improvement across the broader signatory base. The PRI suffers from several weaknesses commonly identified in the literature on voluntary initiatives. First, a lack of accountability measures limits incentives for investors to go beyond business-as-usual. Second, less stringent voluntary standards like the PRI are likely to suffer from adverse selection and free riding, therefore threatening the credibility of the initiative’s reputation over the longer-term. Ironically, weaknesses in the institutional design of the PRI may undermine the very reputational benefit sought after by signatories.

The Principles for Responsible Investment (PRI) is a voluntary investor-led initiative, backed by the United Nations. Together, the six principles are meant to provide a ‘best practice’ code of conduct for institutional investors seeking to adopt responsible investment practices with a secondary goal of contributing to improved corporate performance on environmental, social and governance (ESG) issues. Launched in 2006, the PRI has grown to be the single largest global investor initiative with over 700 signatory financial institutions representing assets under management in excess of $US20 trillion. Contributing to the broader literature on plausible explanations for why firms participate in voluntary initiatives, the thesis is primarily concerned with the question of what has motivated institutional investors to create and publicly commit to the PRI. A review of the broader trends behind the growth of responsible investment and the emergence of the PRI indicates the dominant utilitarian, cost-benefit logic is not wholly persuasive in understanding investor motivations. The research findings indicate that decisions to integrate ESG issues and publicly commit to adopting the PRI should be primarily viewed as a response to formal pressures by external stakeholders and actors in an investor’s institutional environment. Regulatory and stakeholder influences in the form of NGO advocacy campaigns have established normative standards directed towards the conduct of investors. As public opinion has shifted to put greater emphasis on sustainable development, the image and reputation of a pension scheme in relation to these trends have come under increasing scrutiny such that being perceived as a ‘responsible’ investor – sometimes even in the absence of a direct market rationale – has become a central driver behind the growth of responsible investment. The decision to adopt the PRI and establish beyond-compliance commitments to integrate ESG issues into investment decision-making should principally be seen as embedded in broader reputational risk management strategies. These findings support complex market rationalism explanations for firm participation in voluntary initiatives which suggest that firms commit to such principles or codes of conduct as a means of assuring stakeholders that their concerns are being internalized into corporate practices. A secondary focus of the thesis is to examine signatory implementation to-date, assessing the adequacy and effectiveness of the voluntary measure for the promotion of more socially-responsible and environmentally-sustainable investments. While substantial progress has been shown by a small group of PRI signatories, it remains unclear whether the PRI has generated significant improvement across the broader signatory base. The PRI suffers from several weaknesses commonly identified in the literature on voluntary initiatives. First, a lack of accountability measures limits incentives for investors to go beyond business-as-usual. Second, less stringent voluntary standards like the PRI are likely to suffer from adverse selection and free riding, therefore threatening the credibility of the initiative’s reputation over the longer-term. Ironically, weaknesses in the institutional design of the PRI may undermine the very reputational benefit sought after by signatories.

This thesis responds to the question 'how can sovereign wealth funds manage ambiguity in their decision-making so as to implement substantive long-term investment programmes?' The rapid growth of sovereign wealth funds (SWFs) over the past decade, due largely to booming commodity prices, has inspired optimism among many for their potential to contribute to the sustainability goals of society. SWFs are unconstrained by many of the factors that have kept pension funds from realising their potential as long-term investors and so they are well placed to make significant investments in sustainable projects with positive externalities such as infrastructure and to act as effective monitors of corporate behaviour. But many obstacles stand in the way. At the institutional level, transparency has replaced tight financial market regulation, resulting in entrenched short-termism. At the organisational level, many problems facing long-term investors are too complex to fit into traditional models of decision-making. Decentralisation is necessary to respond to this complexity but it conflicts with the coordination necessary to achieve economies of scale and scope. There may not even be an ideal outcome to coerce or incentivise agents to achieve. Taken together, these problems are understood in this thesis as ambiguity, which results from differences in interpretation and irreconcilable conflict. In contrast, most governance frameworks focus on problems of uncertainty and risk, due to missing information. This thesis has three aims. The first is to reframe the governance challenge for longterm investing in terms of managing ambiguity. Second, this thesis aims to reconcile ambiguity with legitimacy that depends on expert decision-making and provides one right answer to a clearly specified problem. Third, it provides specific examples of how ambiguity, if managed, can improve decision-making. That is, ambiguity forces us to engage with subjective reality but also provides us with a framework to do so. Ambiguity can act as a built-in adaptation mechanism to hold a coalition of diverse interests together in a rapidly changing environment, to identify synergies where others see only trade-offs and to overcome collective action problems. These constructive properties of ambiguity are explored in the four substantive chapters of this thesis, alongside specific recommendations for changes to SWF governance structures to transcend barriers to long-term investing. The first half of the thesis focuses on the earlier stages of the investment process and draws on specific examples of two SWFs. Chapter III investigates ambiguity in the Alberta Heritage Fund's inter-generational equity mandate. If managed in the form of self-reflexivity, ambiguity can contribute to overcoming the time inconsistency problem in the context of sub-national resource wealth funds. Chapter IV focuses on the irreconcilable conflict in the Norwegian Fund's ethical investment policy. It argues that agents use their discretion to interpret the policy and, in doing so, are able to align it more closely to the Fund's long-term investing mandate. The second half of the thesis extends consideration to long-term investors more broadly. Chapter V explores the delegation of shareholder engagement to portfolio managers to leverage synergies in an investment management firm. It finds that introducing ambiguity into incentive design can overcome the multi-task incentive problem. Chapter VI brings concepts explored in earlier chapters to bear on its analysis of a new market for public infrastructure assets. It argues that ambiguity provides the space necessary to bring diverse actors together to transcend collective action problems and create new institutional arrangements to support a more efficient market structure. Taken as a whole, this thesis is optimistic that, as those claiming to have the one right answer are increasingly proven wrong, ambiguity will earn its rightful place in the study and practice of finance.