Working Paper: CEPR ID: DP18219
Authors: Lubo Pstor; Robert F. Stambaugh; Lucian Taylor
Abstract: We estimate financial institutions' portfolio tilts that relate to stocks' environmental, social, and governance (ESG) characteristics. In 2021, ESG-related tilts total 6% of the investment industry's assets and average 22% of institutions' total portfolio tilts. ESG tilts are larger for less-volatile stocks and for institutions with smaller size and greater active share, consistent with our theoretical predictions. Significant ESG tilts arise from the choice of stocks held and, especially, the weights on stocks held. The largest institutions tilt increasingly toward green stocks, while other institutions and households tilt increasingly brown. UNPRI signatories and European institutions tilt greener, banks browner.
Keywords: ESG; Sustainable Investing; Portfolio Tilt
JEL Codes: G11; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| smaller institutions (I23) | larger ESG tilts (G40) |
| greater active shares (G34) | larger ESG tilts (G40) |
| less volatile returns (G19) | larger stock-level ESG tilts (G40) |
| largest institutions (I29) | tilt increasingly toward green stocks (F64) |
| other institutions and households (G59) | tilt brown (Y20) |
| UNPRI signatories and European institutions (G23) | tilt greener (P18) |