Do Responsible Investment Indices Improve Corporate Social Responsibility? FTSE4Good's Impact on Environmental Management

Manuscript Empirical Research Question/Issue F index but failed to meet enhanced requirements were subject to both engagement by F and the threat of expulsion from the index. We examine the combined effect of these actions, estimate the contribution of both elements separately, and the influence of concentrated equity ownership, corporate governance, and the institutional environment. We also evaluate whether the effect is persistent or transitory. Research Findings/InsightsFor a sample of 1,029 firms from 21 countries, our findings demonstrate that engagement combined with the threat of expulsion from the F index doubles the probability that a firm failing to meet the environmental management criteria in 2002 would comply by 2005. Our results contribute to the understanding of the complexities of governance, where decision makers are constrained or influenced by equity holders, the firm's governance system, institutional arrangements, and collective engagement by institutional equity holders. Our findings are consistent with both institutional and agency issues impacting on decision making. Practitioner/Policy ImplicationsOur study suggests that engagement via a responsible investment index reinforced by the threat of public expulsion from the index provides an effective route for large-scale collaborative investor engagement on corporate social responsibility issues targeting large and internationally diverse firms. It also demonstrates why regulators may wish to encourage engagement of this type to achieve social benefits.