Agency Theory’s “Truth Regime”: Reading Danish Pension Funds’ Decisions Regarding Shell from the Perspective of Agency Theory

Abstract

With the progression of both the climate crisis and financial capitalism, institutional investors play an increasingly central role in fossil fuel companies’ business decisions. Against this backdrop, this article investigates the underlying rationales of Danish pension funds’ climate-related investment decisions analyzed from the perspective of one of the dominant finance theories today on the governance relationship between investors and corporations: agency theory. Hitherto, investors’ climate-related investment decisions have not yet been studied from the perspective of how investors’ actions align with the assumptions of agency theory. Thus, this study explores the degree to which select Danish pension funds’ climate-related investment decisions regarding Royal Dutch Shell can be verified according to agency theory. First, deploying Foucault’s notion of a “truth regime”, the article analyzes how a certain action can be defined as true, read from the perspective of investment assumptions derived from agency theory, a truth regime of agency theory. Second, the paper explores the degree to which this truth regime can be identified in the climate-related investment decisions of the three Danish pension funds, PFA, PKA, and AkademikerPension, regarding Shell’s general assembly, 2021. The investigation concludes that the assumptions of the agency theory truth regime constitute a part of the central reasonings in financial capitalism and that, insofar as investors significantly align with the prescriptions of agency theory, it substantially reduces their possibilities to take Paris-aligned investment decisions.