Socially Responsible Investing in the Global Ownership Network

We connect the corporate ownership network to the network of financial instruments that inject money into the ownership network. The ownership network in our data consists of 66 million nodes (i.e., companies and their shareholders) and over 90 million ownership links among them. The previous studies on the network of corporate ownership and control emphasize the importance of roles played by banks and other financial institutions in the network [1-4]. However, it is left unanswered where the financial institutions collect the capital from so that they can inject cash into the capital market (i.e., corporate ownership network). We therefore look into ETFs and mutual funds as the financial instruments through which the investors (individual and institutional alike) supply money in the shareholding network. In this way, we extend the existing research on corporate control in the ownership network to the network of investment funds purchased by investors (such as central banks) from asset managers and other the institutional investors.
The analysis of the shortest path from asset management companies to a munition company reveals that no asset manager either in the US or Japan directly invests in any Chinese munition companies with one link of ownership. That is, no Chinese munitions company's stock was included in the ETFs or mutual funds listed in the US and Japanese markets. However, almost all the asset managers have at least one path through which their equity stakes eventually reach a Chinese munitions company with the second or further apart links in the global ownership network.
This result points to an important social consequence, namely causing the disparity between the power of corporate control and the stewardship responsibility. In the ideal world where the investors who strive for socially responsible investing should be empowered by their own equity stakes to make positive impacts on corporate activities related to the ESG issues. However, our analysis suggests that two obstacles encourage decoupling of equity stakes and social responsibilities so that socially responsible investors become incapable of making positive impacts with their investing strategy. The first obstacle is the fact that ETFs and other similar financial instruments separate capital and corporate control. The second obstacle is the complexity of ownership network itself. While the investors may have the potential to control munition companies, the complexity of the ownership network is likely to prevent the investors from knowing its own potential.

Συνεδρία: 
Authors: 
Takayuki Mizuno, Shohei Doi, Takahiro Tsuchiya and Shuhei Kurizaki
Room: 
6
Date: 
Tuesday, December 8, 2020 - 13:35 to 13:50

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