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 nearly 25% 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.
The views in this paper are the responsibility of the authors, not the institutions they are affiliated with. We are grateful for comments from our discussants Kunal Sachdeva and Adam Winegar, from Winston Dou, David Musto, Mike Sebastian, Yao Zeng, Olivier David Zerbib, participants at the 2023 BI Conference on Corporate Governance, 2023 University of Houston/Dallas Fed Energy Finance and the Energy Transition conference, 2023 University of Alberta Frontiers in Finance Conference, and seminar participants at the following universities: Alabama, EDHEC, Peking, Pennsylvania, and Tinbergen Institute. We dedicate this paper to the memory of Livia Amato, whose many contributions as a research professional have benefited this paper as well as our prior work. We also thank Vitor Furtado Farias and Vanessa Hu for excellent research assistance. This research was funded in part by the Fama-Miller Center for Research in Finance at the University of Chicago Booth School of Business. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Lubos Pastor is a member of the governing board of the National Bank of Slovakia. Among its duties, this central bank serves as the principal regulator of mutual funds in Slovakia. Yet the bank has no stake in this research, no benefit from it, and no influence upon it.
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