Four Facts About ESG Beliefs and Investor Portfolios

Working Paper: CEPR ID: DP18052

Authors: Stefano Giglio; Matteo Maggiori; Johannes Stroebel; Zhenhao Tan; Stephen Utkus; Xiao Xu

Abstract: We analyze survey data on ESG beliefs and preferences in a large panel of retail investors linked to administrative data on their investment portfolios. The survey elicits investors’ expectations of long- term ESG equity returns and asks about their motivations, if any, to invest in ESG assets. We document four facts. First, investors generally expected ESG investments to underperform the market. Between mid-2021 and late-2022, the average expected 10-year annualized return of ESG investments relative to the overall stock market was −1.4%. Second, there is substantial heterogeneity across investors in their ESG return expectations and their motives for ESG investing: 45% of survey respondents do not see any reason to invest in ESG, 25% are primarily motivated by ethical considerations, 22% are driven by climate hedging motives, and 7% are motivated by return expectations. Third, there is a link between individuals’ reported ESG investment motives and their actual investment behaviors, with the highest ESG portfolio holdings among individuals who report ethics-driven investment motives. Fourth, financial considerations matter independently of other investment motives: we find meaningful ESG holdings only for investors who expect these investments to outperform the market, even among those investors who reported that their most important ESG investment motives were ethical or hedging reasons

Keywords: Surveys; Expectations; Climate Finance; ESG; Sustainable Finance

JEL Codes: G11; G12; R30

Causal Claims

Cause	Effect
ESG beliefs (A13)	investment behaviors (G41)
ethical motives (A13)	ESG portfolio size (L25)
return expectations (D84)	investment motives (G11)
financial considerations (G50)	ESG holdings (G32)
motive influence (E71)	actual ESG holdings (G39)