Sovereign wealth funds as socially responsible investors

Abstract

Sovereign Wealth Funds (SWFs) are public investment vehicles, owned and managed directly or indirectly by governments and set up to achieve a variety of macroeconomic purposes. As institutional investors, SWFs have the fiduciary duty to act in the best long-term interest of their beneficiaries. In this context, socially responsible investment may enable a SWF to increase its financial profitability. However, the fiduciary duties of SWFs towards their beneficiaries go beyond the economic maximization of returns on their investments. In the aftermath of the financial crisis, SWFs have established themselves as important financial markets participants. This paper will, first, address the existing international regulatory frameworks that govern the responsibility and accountability of SWFs, and, second, discuss ways to improve those frameworks in order to enable SWFs to become sustainable investors. The focus of the paper is on evaluating the leverage of SWFs in the global economy, as well as their potential to promote corporate social responsibility and, therefore, to lead the financial sector towards greater sustainability.