Catching Up with Impact Fellow Bram van der Kroft: Exploring Deliberative Democracy in Climate-Oriented Financial Decisions

MCSC Impact Fellow Bram van der Kroft is working to improve the environmental and social performance of both investors and companies. His research examines the impact of shareholder proposals in the listed real estate industry as well as how environmental, social, and governance (ESG) preferences of investors can be used to guide their actions in the financial sector. At MIT, Bram works with both the MCSC, the MIT Sloan Aggregate Confusion research project, and the Center for Real Estate. In a recent working paper, co-authored with Rob Bauer (Maastricht University), Emmeline Cooper (Cranfield University),  and Paul Smeets (University of Amsterdam), Bram explores the notion of investor democracy. He and his co-authors apply “deliberative democracy” to give pension fund members a voice in investment decisions, demonstrating the significance of informed member input in impact investing. We spoke with Bram about his current research and where it is headed, his latest work, and some of his highlights from working with the MCSC so far.

I am working on studies examining investors’ willingness to invest for not just financial but also environmental and social motives. I am studying the extent to which investors are willing to sacrifice returns to reduce externalities, if any. 

Additionally, I am investigating whether the mechanisms that they use are impactful for a firm’s environmental and social decision-making, either by reallocating their portfolios or by actively engaging with firms through shareholder proposals. Together, these channels help determine whether investor preferences can meaningfully influence corporate behavior.

My research builds off a central idea: all large companies depend on external financing, whether through equity offerings, debts, bonds, or bank loans. If investors are willing to provide funding to more sustainable firms and sacrifice financial returns, that willingness can lower firms’ cost of capital and support more sustainable operations. 

A key finding from my recent paper is that many investors, particularly retail investors, are not always well-informed about the impact of their investments. As a result, they may not initially express a desire to invest sustainably or make well-informed trade-offs between returns and impact. However, when investors become better informed, their preferences change.

Once informed, investors begin to care more about the impact their investments have, including how their pension savings are allocated. For companies and financial institutions, this suggests that improving investor understanding of the impact they make on environmental and social dimensions can play an important role in sustainable financing.

So far, I’ve been most proud of the second stage of this research paper. In this phase of the study, participants were given a real decision about whether their pension fund should invest more sustainably after engaging in an extended deliberation process. Following the vote, the pension fund invested between €300 million and €1.2 billion in private market impact investments.

Pension fund participants in defined benefit or collective defined contribution plans are rarely given meaningful influence over how their money is invested, a situation described as a “democratic deficit.” The fact that the pension fund was willing to give participants partial control and that participants engaged seriously with the decision is something I see as both impactful and encouraging. This wasn’t just academic. It changed actual asset allocations and had real environmental and social impact. That’s why I came to the MCSC.

I have also been proud of the collaboration opportunities I have embraced during my time at the MCSC. I have had the opportunity to work with MIT Professors Roberto Rigobon and Siqi Zheng, as well as Principal Research Scientist Florian Berg.