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Hybrid Approach for Robust Identification and Measurement of Investors Driving Corporate Sustainability and Innovation. Design of Policy Tools for Evaluating the Impact of Specific Investors and Assessing the Quality of Companies’ Investor Bases.

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Following several decades of profit-oriented research in finance and economics, we have recently been observing a profound transformation in investor perception and a visible shift towards a sustainable financial system. The list of UN PRI signatories includes already over 2,000 large asset owners and keeps growing every year. Several reports (US SIF 2018) indicate that over 20% of professionally managed assets in the U.S. is already being invested according to the principles of socially responsible investing (SRI). While an increasing number of institutional investors are indicating their commitment to social and environmental sustainability, it remains unclear which investors have the most substantial and lasting effect on the sustainability of companies.
In this project, we intend to measure the extent to which specific investors influence the sustainability of companies they invest in. We focus on the measurable side of sustainability, in particular the environmental impact of the activity of companies, and the level of corporate innovation, measured using patents data. By combining a previously untested dataset with a novel, hybrid methodology, we seek to answer deep-rooted scientific and practical questions such as whether the investor base affects the sustainability and innovation potential of a company. If so, can we identify and highlight investors who are effectively driving the future development of companies across the globe?
By answering these questions, we will provide clear guidance on the design of policy tools to support investors and monitor the investor bases of companies. To maximize the societal and scientific impact of this project, we will use our findings to design two practical tools for policymakers and investors, which will empower them to make more viable and future-oriented decisions concerning sustainability and innovation. The first tool will enable an evaluation of the impact of a specific investor on sustainability, based on their historical behavior. The second tool will provide information whether company’s investor base is likely to promote its sustainable development.
Our approach differs sharply from other projects in this field:

  • While the bulk of existing studies either use investor groups, we focus on the impact of individual investors on the evolution of sustainability of the companies they invest in. This will involve building and using untested dataset on investors and company data.
  • We extend the scope of the analysis to include crucial investors such as insurers, banks, pension funds, hedge funds as well as sovereign wealth funds.
  • We focus simultaneously on sustainability and innovation, which has not been investigated in a comprehensive analysis so far.
  • We include European and U.S. companies and investors, in contrast to U.S.-focused studies.
  • The proposed hybrid methodology combines linear and non-linear approaches as well as machine learning. It provides a variety of novelties over conventional approaches such as: adaptivity and time variation, addresses the spurious regression problem, and combines linear and non-linear dynamics. We also include a multi-tier data aggregation technique.
  • We provide user-friendly assessment tools and seek to maximize usability of results.
    Through contacts with national and international organizations as well as public and private sector investors, we will disseminate the research and tools to an academic and non-academic audience.