- Black/Scholes Option Pricing Model •
- Capital Asset Pricing Model (CAPM) •
- Common ownership •
- Disclosure •
- ERISA •
- Externalities •
- Index Fund •
- institutional investor •
- SEC Sole Benefit Rule
The U.S. securities markets have recently undergone (or are undergoing) three fundamental transitions: (1) institutionalization (with the result that institutional investors now dominate both trading and stock ownership); (2) extraordinary ownership concentration (with the consequence that the three largest U.S.
This article will offer two reasons for the desire of institutions for greater ESG disclosures: (1) ESG disclosures overlap substantially with systematic risk, which is the primary concern of diversified investors; and (2) high common ownership enables institutions to take collective action to curb externalities caused by portfolio firms, so long as the gains to their portfolio from such action exceed the losses caused to the externality-creating firms. This transition to a portfolio-wide perspective (both in voting and investment decisions) has significant implications but also is likely to provoke political controversy. As institutions shift to portfoliowide decision making, the disclosure needs of individual investors and institutional investors diverge and serious conflicts can arise.