Socially responsible investment as an integrated part of pension funds portfolios: exploring the common areas between corporate governance and sustainable investment: analysis of the Spanish case

Socially Responsible Investment (SRI) is a clear reflection of the growing awareness among investors to analyse and pay greater attention to companies' socially responsible and sustainable performance, and this involves searching for long-term financial returns. SRI tends to minimise financial risk by using sustainability indicators to avoid risky business management. The most innovative studies agree that SRI is one of the driving forces of Corporate Social Responsibility (CSR) from the finance market standpoint (Sparkes et al., 2004; Yankelovich, Inc., 2006; Scholtens, 2006), above all because of the power wielded by institutional investors in the form of pension funds and large investment funds. Among SRI strategies, shareholder activism encompasses the actions undertaken by socially responsible investors who, in their awareness of social and environmental issues, exercise their role as shareholders to influence corporate decision-making. Such actions include engagement and shareholder activism (voting strategies). Socially responsible investors use the engagement strategies to influence corporate policy and corporate governance from the position of shareholders. Asset Managers creates engagement teams to dialogue and to collaborate with the company and their management teams, on corporate social and environmental issues, policies and practices. But also, socially responsible investors exercise their right to trustee voting and taking part in the Annual General Meetings (AGM). The right of a company's shareholders to file shareholder's resolutions, vote and influence business decisions is one of investors' basic political rights and one of the main mechanisms of developing corporate governance (CG) in the business context. At this junction, responsible investors use CG mechanisms to wield their power. This is why, in recent years, corporate governance legislation becomes one of the main driving forces behind SRI shareholder activism strategies (Eurosif, 2005). The commonalities between CG and SRI lie on the increase of accountability mechanisms from the side of corporate management in order to ensure the long-term well being of the company and of its stakeholders (Eurosif, 2005). The objective of this research is to analyse the role of SRI as an integrated part of corporate pension fund portfolios in Spain, taking into account the CG aspects.