Working Paper: NBER ID: w31320
Authors: U. B. Pastor; Robert F. Stambaugh; Lucian A. 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; institutional investing; portfolio management
JEL Codes: G11; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ESG-related tilts (F64) | investment industry's assets under management (AUM) (G23) |
| larger institutions tilt increasingly toward green stocks (F64) | ESG-related tilts (F64) |
| smaller institutions tilt brown (I23) | ESG-related tilts (F64) |
| UNPRI signatories (G23) | greener portfolio tilts (G11) |
| signing UNPRI (F53) | institutions become greener (O44) |
| less volatile stocks (G19) | larger ESG tilts (G40) |
| smaller size and greater active share (L25) | larger ESG tilts (G40) |
| increase in weights on green stocks (O44) | rise in green tilts (O44) |
| aggregate ESG tilts (G40) | similar magnitudes and time-series patterns across dimensions (C32) |